Revisiting the nexus between Economic Growth and Environment Health: An Empirical Study on 180 Nations

Abstract

Sustainability is considered to be one of the biggest issues of our times. This study aims to understand the role of sustainability further by revisiting the much debated and intricate relationship between economic growth and environmental performance and to provide guidance to policymakers. Using a large sample of data from 180 countries over the period from 2002 to 2017 a measure that captures the various aspects of environmental performance, we perform a test of the Environmental Kuznets Curve (EKC) hypothesis, which defines the relationship between economic growth and environmental deterioration. Controlling for several associated macroeconomic and governance variables, our results suggest that, for certain regions, viz. Asia, Eastern Europe, and North America, higher economic growth as proxied by per capita GDP has a negative association with environmental performance as proxied by Environmental Performance Indices (EPI), indicating that the former may prove detrimental to the latter. Our results suggest a unidirectional relationship between the two variables and are also robust to endogeneity concerns that are often emphasized in the EKC literature. We document similar results for lower-income and lower-middle-income countries. Interestingly, we also find that small-sized governments in developing nations have a positive association with environmental performance.