The non-linear relationship between economic development and air pollution: evidence from panel data analysis

Thao Thanh Thi Tran, Hoang Thanh Tran and Khoa Dang Duong

Asian Journal of Economics and Banking, 2025, vol. 10, issue 1, 81-95

Abstract: PurposeThis article aims to analyze the connection between economic growth and air pollution within Asian countries. The report aims to take further steps to examine a non-linear relationship between economic expansion and environmental degradation, with a particular focus on a turning point. The results could help policymakers in Asian countries to improve their economies sustainably.Design/methodology/approachThis study collects data from 27 West and South Asian nations from 2000 to 2020. The authors implement the Driscoll–Kraay Standard Estimator method to deal with cross-sectional dependence, heteroskedasticity, and autocorrelation problems.FindingsOur results show that when gross domestic product increases by 1%, emissions decrease by 3.254%. However, when countries reach higher levels of economic development and a certain income level reaches 4,126.25 USD, economic growth increases CO2 emissions by 0.45%, pointing to a U-shaped relationship between economic growth and air pollution. Although these results are consistent with the green growth theory, they do not support the pollution haven or the environmental Kuznets curve (EKC) hypothesis.Practical implicationsOur research provides policymakers and economic operators with rich empirical evidence for new strategies to develop local economies sustainably without encountering environmental problems. Firstly, policymakers could rely on the findings of this study to identify the economic development threshold that helps reduce environmental degradation. In addition, greener business practices, public awareness toward climate change and circular economies are suitable suggestions for policymakers to develop sustainable growth in Asian nations.Originality/valueThis study comprehensively analyzes the relationship between economic growth and CO2 emissions in West and South Asian countries, integrating economic, environmental and social perspectives. It challenges the EKC hypothesis by identifying a U-shaped relationship, where early growth reduces emissions, but industrial expansion beyond a certain income threshold increases them. The study uses the Driscoll–Kraay standard error method to ensure robust findings by addressing statistical issues. Examining diverse economic structures and environmental conditions advances research and offers valuable insights for sustainable development policies.

Keywords: Carbon dioxide emission; Economic development; West Asia; South Asia; Kuznets curve; Driscoll–Kraay standard estimator (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ajebpp:ajeb-09-2024-0112

DOI: 10.1108/AJEB-09-2024-0112

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