International Comparison of Environmental Efficiency (1990–2008)

Abstract

In the 2000s, the deterioration of environmental conditions became an increasingly serious issue in developing countries, because this began to have a negative impact on their economic growth. According to the World Bank (2009), climate change arising from environmental deterioration could result in a permanent deceleration in economic growth in developing countries. To maintain sustainable development, these countries need to reduce environmental pollution without sacrificing economic growth. This appears to be a particularly challenging balancing task for developing countries, since they are confronted with serious environmental problems and low economic growth. In this study, we specifically focus on developing countries and the analysis of environmental efficiency, which simultaneously accounts for CO2, SO2, and NOX. To accomplish this, we estimate the environmental efficiency of these three environmental pollutants using a Hicks-Moorsteen productivity index from 1990 to 2008 for both high income and low and medium income countries. Furthermore, using a cross-section data set and a panel data set of environmental efficiency, we examine whether the environmental Kuznets curve (EKC) hypothesis is applicable to all countries from the 1990s to 2000s. Several studies have estimated environmental efficiency and examined the EKC hypothesis in developed countries from the 1970s to 1990s; however, the developing countries were not addressed in this context until the 2000s. From our analysis, we obtain the following three results. First, we confirm that developed countries have low environmental efficiency. This means that developed countries have significant potential to reduce environmental pollutants but low potential for economic growth. Second, we recognize that environmental efficiency in developing countries differs by region and country. Some developing countries have significant potential to reduce environmental pollutants and high potential for economic growth. Third, we found that the EKC hypothesis examined for the three environmental pollutants is applicable from the 1990s to 2000s.