Revisiting the environmental Kuznets curve and pollution haven hypotheses: MIKTA sample

Area of Science:

• Environmental Economics
• Econometrics

Background:

• The environmental Kuznets curve (EKC) theory suggests environmental degradation initially worsens with economic growth but improves at higher income levels.
• The pollution haven hypothesis posits that as economies develop, they tend to offshore polluting industries to countries with less stringent environmental regulations.

Purpose of the Study:

• To test the validity of the environmental Kuznets curve (EKC) and pollution haven hypotheses in Mexico, Indonesia, South Korea, Turkey, and Australia (MIKTA) countries.
• To analyze the dynamic relationships between income level, foreign direct investment (FDI), energy consumption, and CO2 emissions in MIKTA nations.

Main Methods:

• Panel vector auto-regressive (PVAR) model applied to MIKTA countries' data from 1982 to 2011.
• Granger causality tests and orthogonalized impulse-response functions derived from PVAR estimations.

Main Results:

• The EKC hypothesis was rejected for the MIKTA sample.
• Significant Granger causality was found from income level, inward FDI, and energy consumption to CO2 emissions.
• A positive response of CO2 emissions to FDI shocks indicates a detrimental effect of FDI on environmental quality.

Conclusions:

• The pollution haven hypothesis is confirmed for MIKTA countries, as FDI contributes to increased CO2 emissions.
• MIKTA countries need to revise economic growth strategies for sustainable development.
• Reorganization of legal infrastructure to promote renewable energy usage is recommended.