Disaggregated Analysis of Economic Growth and Environmental Degradation

Abstract

Environmental degradation, its consequences, and formulation of feasible pathways to mitigate have attracted the attention of the experts and policymakers across the globe. Most of the theoretical and empirical models mainly focused on environmental implications of overall economic growth. Nevertheless, the sectoral level disaggregated analysis of economic growth and environmental degradation becomes imperative for effective, efficient, and productive environmental policy framework. The aim of the current study is to analyze the impact of overall economic growth, agriculture sector, industrial sector and service sector, along with other factors viz FDI, renewable energy consumption (REC), economic policy uncertainty (EPU) and international tourism on environmental degradation. This study consists of 4 linear and 4 nonlinear models using Bayesian Linear Regression taking data of selected developed and developing economies during the years 2001 to 2023. The estimates show that, in linear models, overall economic growth, agricultural, service, and industrial sector growth reduce environmental degradation. However, in non-linear models, the squared overall economic growth, agricultural, services, and industrial sector growth increase environmental degradation. It confirms that the impact of overall economic growth, agricultural, services, and industrial sector growth are statistically significant and hold u-shaped relationship with environmental degradation. Whereas, renewable energy consumption, irrespective of a model is linear or non-linear, reduces environmental degradation. However, FDI, international tourism, and economic policy uncertainty increase environmental degradation. To conclude it can be announced that the environmental Kuznets curve is valid in case of overall GDP growth rate and the separate sectors viz, agriculture sector, industrial sector and service sector. The results are robust and prove comprehensive insights for the productive strategies to mitigate environmental degradation caused by either overall economic growth or growth at disaggregated level.