Effect of economic growth on environmental quality: Evidence from tropical countries with different income levels

The growth of the economy in the tropics is faster than that in the rest of the world. However, whether this growth can have impacts on the environmental quality in the tropics is still a question. Here, we first introduce the terrestrial carbon sequestration capacity as an environmental indicator and then investigate the relationships between gross domestic product per capita, sectoral economies, and the terrestrial carbon sequestration capacity for different income countries in the tropics from 1995 to 2018. By using panel models, we find that there exists a significantly negative effect of the growth of gross domestic product per capita on terrestrial carbon sequestration capacity in the full panel and at low-income and lower middle-income levels but not at the upper middle-income level. The sectoral economies have different effects on the terrestrial carbon sequestration capacity at different income levels. Interestingly, the industrial sector dominates the degradation of the terrestrial carbon sequestration capacity in the lower middle-income countries; the agricultural sector exerts a significantly negative impact on the terrestrial carbon sequestration capacity at the low-income and upper middle-income levels, but largely offset by the growth of the service sector. These findings suggest that the balance between economic development and the natural environment is required for economic sustainability in the tropics.