Ecological Degradation, Climate Change and Economic Growth: A Simultaneous Modeling Analysis of Central European Countries

Piyali Kumar () and Soumyendra Kishore Datta ()
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Piyali Kumar: The University of Burdwan
Soumyendra Kishore Datta: The University of Burdwan

Journal of Quantitative Economics, 2025, vol. 23, issue 3, No 11, 949-978

Abstract: Abstract As per the dictum of European Green deal era, it appears crucial to explore the mechanism through which economic activities drive ecological degradation and climate change and how these factors have impact on output in a feedback loop, understand the vulnerabilities of ecosystem and find strategies to counter these. Theoretical modeling followed by an empirical analysis are applied for this study. Initially, an optimal control approach based on Hamiltonian framework is applied to derive stability condition involving resource extraction, pollution emission and growth. Subsequently simultaneous equation modeling is used to empirically analyse the interdependence across economic growth, deforestation, freshwater withdrawal and carbon dioxide (CO2) emission involving eight Central European countries during 2000 to 2022. Three stage least square estimation results are found mostly consistent with robustness test checked by system generalized method of moments. Unit root, heterogeneity and weak instrument tests have been done and confirm improved results. The results affirm negative association of economic growth with deforestation, water withdrawal and CO2 emission. Further, it was found that deforestation and energy consumption enhance CO2; urbanization, livestock and industrial production trigger freshwater withdrawal; and metal export and crop production escalate deforestation. However, negative association is noted between foreign investment and economic growth; CO2 and urbanization; industrial production and deforestation. Finally, stringent and coherent regulatory policies are prescribed to attain sustainability.

Keywords: Economic development; Environmental degradation; Natural resources; Optimal control; Simultaneous equation model; Three-stage least square (search for similar items in EconPapers)
JEL-codes: C3 F63 O13 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s40953-025-00454-w

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