Optimal governance for economic growth and environment: evidence from the United Kingdom

Abstract

ABSTRACT It has now been more significant than ever to understand the consequences of environmental policies given the unsustainability of enduring environmental challenges. This study aims to examine the nexus between economic growth, industrialisation and the environment in the United Kingdom, using time series data for the period 1948–2018. Gross Domestic Per Capita (GDPC) is used as a proxy for economic growth, energy consumption as measures for industrialisation and carbon dioxide emissions (Co2) or environmental pollution to test if the Environmental Kuznets Curve (EKC) holds for the UK. Autoregressive distributed lag (ARDL) and vector error correction model (VECM) have been employed to investigate the long-run and short-run causal relationships among variables, respectively. The paper concludes that the EKC hypothesis holds for the UK as the long-run relationship between CO2 emissions and GDPC is found. Further, energy consumption and imports of goods are found to have insignificant effects on the environment in both the short-run and long-run. The paper further concludes that environmental policies such as limiting energy consumption and controlling carbon emissions have no unfavourable effect on the real output growth in the UK.