The goal of all nations is to achieve sustainable economic development. With economic development comes increase in production which has an impact on energy use of the country. Higher economic output has resulted in higher energy consumption thus increasing emissions. Richer countries, however, have more resources available to invest in energy effect technologies to reduce their environmental imprint. We investigated the relationship between economic growth and the environment for 26 EU countries, using the hypothesis postulated for the Environmental Kuznets Curve (EKC), which assumes an inverted-U shape relationship between economic growth and environment.
The goal of all nations is to achieve sustainable economic development. Energy sources and their use in production processes have had a great impact on a country’s economic growth. The knowledge of a relation between economic growth and the environment is considered to be extremely important for effective strategy development with regards to environment and energy that support sustainable development. Thus, the relationship between energy use and economic growth has been examined in detail; however contradictory results appear in the literature (Doğan et al., 2020).
Kraft and Kraft (1978) were amongst the first researchers to explore the relationship between economic growth and energy use. The connection between economic growth and energy use presented with four hypothesis: first, the growth hypothesis assumed that increasing the use of energy would increase economic development. The hypothesis stated that economic growth increased with increased energy consumption as the energy consumption could be taken as an indicator of its usage in production process implying increase in production output (Kraft and Kraft, 1978, Bowden and Payne, 2010). The second hypothesis, conservation hypothesis, assumed that energy consumption was determined by economic growth (Abosedra and Baghestani, 1989). The third hypothesis is of feedback where a bidirectional relation exists between energy and economic growth (Shahbaz et al., 2020). The last hypothesis is of neutrality where no relationship between the two exists (Soytas et al., 2007).
The four different hypothesis that link energy use and economic growth indicate that the notion of ‘one size fits all’ does not apply. The relationship between the two has been described though Environmental Kuznets Curve (EKC). The curve took the form of inverted U-shape between economic growth and environmental pressures. The EKC hypothesis stated that the emissions are expected to rise with economic growth until a certain point is reached after which the improvement in economic growth lead to an improvement in the environment.
Different indicators have been used to measure environmental pressure and economic growth. Taking the example of 26 EU countries, we measured energy consumption per capita as a proxy for environmental pressure as emissions are directly related to energy use. The variable of GDP per capita was taken as a proxy for economic growth.
Figure 1 plots the GDP per capita for 26 EU countries from 2010 to 2018 against energy use per capita. We used the EU 26 countries in aims to test the hypothesis of Environmental Kuznets Curve (EKC) was tested for the 26 EU countries. The visual representation shows that there is as presence of inverted-U shaped curve though it is slightly left-skewed.
Figure 1: The Environmental Kuznets Curve (EKC)
This suggested that as the countries experience economic growth, the deterioration of environment decreases and becomes less of an issue. The improvement in economic growth of a country is a generally a result of an increase in economic activity which leads to environmental degradation due to energy use. As the countries become richer, their environmental awareness increases and so does the demand for environmental regulations. Richer countries are also willing to invest more in R&D to develop energy efficient technologies that limit the use of dirty fuel and promote clean energy.
However, using GDP per capita as a single proxy of economic growth cannot accurately reflect the differences and disparity amongst the countries. Even countries on the same level of economic development can have different production processes through interaction of different inputs. Thus, a country’s overall economic growth is not only depended on its production output but also by other factors such as infrastructure, education, health, energy structure and urbanization. So, to further understand the relationship between economic growth and environmental pressures for the 26 sample EU countries, future research needs to be carried out to understand the diversity among countries.
References:
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