Economic growth and its impact on environment: A panel data analysis

This paper aims to explore the relationship between the economic growth and the pressure on nature from the environmental sustainability perspective. The pressure on nature is measured by the natural disinvestment component of the Adjusted Net Savings data of the World Bank; which is the sum of energy, mineral, net forest depletions and carbon dioxide damage, all measured in US dollars. Our panel consists of 213 countries and spans the period between 1970 and 2008. We employ a panel Fixed-Effects Instrumental Variable (IV) methodology. Regression analysis reveals that there is a positive relationship between income and pressure on nature, yet the effect is much stronger in middle-income than in low and high-income countries, and also differs across subcomponents. While increase in income decreases the pressure on forests, CO ₂ damage and mineral extraction increase. We found that increasing trade, all else equal, increases the pressure on nature, hence our findings support Race-to-the-bottom hypothesis.