Interdependence between environmental performance and economic growth with a policy approach towards sustainability: Evidence from panel data

Abstract

An empirical analysis was conducted to show the interdependence relationship across GDP per capita (GDPPC), forest area (FA), metal and ores export (EX), organic water pollution (OWP), greenhouse gas (GHG) emission etc. This study consists of four equations simultaneous model using panel data covering 59 countries of different income groups i.e. higher, middle and lower-income for the period 1990 to 2015. We employed instrumental variable two stage least square (IV/2SLS) method to check the endogeneity problem. FE-2SLS (fixed effect two-stage least square) and RE-2SLS (random effect two-stage least square) models have been employed and followed by the Hausman test to choose between two said, models. The result indicates that organic water pollution, GHG emission and metal and ores export have a direct positive impact on economic growth while forest area is found to harm both GDPPC and GHG emission. Indeed, EX harms the forest but it is insignificant in middle and lower-income groups. The result also suggests that economic growth enhances OWP for higher income and GHG emission for the middle-income group only. Moreover, EX has a positive interconnection with GHG emissions in higher and middle-income groups. Lastly, policy suggestion has been made for attaining asustainable society.