DOES NATIONAL PURSUIT OF A HEALTHIER ENVIROMENT LEAD TO REDUCED ECONOMIC GROWTH? SOME CROSS COUNTRY EVIDENCE
Journal Title: International Journal of Research in Social Sciences - Year 2012, Vol 2, Issue 1
Abstract
Using a recently developed overall measure of environmental performance that considers a whole host of environmental dimensions, this paper employs cross country regression analysis on a large number of countries around the world in order to investigate whether improved national environmental performance adversely effects national economic growth. The results are consistent with the hypothesis that actions taken by countries to upgrade the environment come at a price of reduced economic growth. The essence of economics is that mankind lives in a cost world, a world of trade-offs. If humans want more of one good, then, unfortunately, they must sacrifice, make due with less of another good. The same holds true for the good known as environmental quality. While those who are emotionally charged with environmental concerns might sincerely wish, might want to convince themselves and others, that we can improve the environment without any negative consequences, this, as in all endeavors in this scarcity ridden milieu we inhabit, is not apt to be case. In the real world as opposed to the world we dream to have, we can never have our cake and eat it too. Improved environmental performance, improved environmental quality, imposes an added cost on industry for producing other goods. For example, if we want less pollution in the air, then, among many other changes, coal generating electric plants must install expensive pollution abatement equipment, cars must be built with pollution control devices, and cars must be designed to use less fuel. The major hypothesis of the paper is that improved national environmental performance, by increasing the cost of producing goods and services, reduces economic growth. That is to say, national policies and regulations targeted at bettering the quality of the environment come at the expense of lower economic growth. The purpose of the paper is to use cross country regression analysis to test the hypothesis, and given that the hypothesis is true, to get some notion of the magnitude of the effect of incremental improvement of the environment on economic growth. The paper is comprised of five sections. The first section reviews some of the recent literature on the cost of environmental improvement. The second section discusses a simple model relating economic growth and environmental performance. The third section discusses the variables and identifies the sources of the variables that will be used in the empirical analysis. The fourth section shows the results of cross country regressions of average annual real economic growth for both a ten year period and a five year period on a measure of overall environmental performance in isolation, and when adjusting for various control variables. The fifth and final section concludes.
Authors and Affiliations
William R. DiPietro
Keywords
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