Ecological Footprint, CO2 Emissions and Economic Growth in Qatar : Evidence from a Markov Switching Equilibrium Correction Model
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Ecological footprint, CO2 emissions and economic growth in Qatar : Evidence from a Markov Switching Equilibrium Correction Model Charfeddine Lanouar1, Department of Finance and Economics, College of Business and Economics, Qatar University, Qatar. Abstract Reducing the impact of air pollution and global environment degradation on Human health and the quality of Qatari living is one of the most important pillars of Qatar 2030 vision. With respect to this vision, we examine the effects of economic growth, energy consumption, urbanization, openness trade and financial development on environment quality during the period 1975-2011 in Qatar. Unlike the existing studies, we use the ecological footprint and the 퐶푂2 emissions as indicators of environment degradation. Moreover, we use Markov Switching Equilibrium Correction Model with shifts in both the intercept and the income per capita coefficient. Our finding show strong evidence for cointegration with Markov shifts. We found, for both pollutants, that the EKC hypothesis holds for the Qatar economy when accounting for possible shifts. Moreover, we found that financial development, urbanization and openness trade worse environment. In contrast, we found that the effect of electricity consumption on 퐶푂2 emissions is positive and negative for ecological foot print. Keywords : Environment degradation, EKC, CO2, foot print, economic growth, Cointegration with Markov shifts. JEL classification : 1 P.O.Box: 2713-Doha-Qatar. Email : [email protected]. Office : (+974) 4403-7764, Fax : (+974) 4403-5081. 1 1. Introduction “Long live the planet. Live Humanity. Long live life itself.” With this slogan of the COP21 Paris climate change conference of November-December 2015, there is actually no doubt in the priority of preserving the planet from the growing warmer of the earth’s atmosphere in the coming years. The main outcome from this conference, is the large commitment of more than 187 countries around the world to reducing their greenhouse gas in order to keep the rise in temperature below the level of 2°C. Human activity and rapid population increases are the most two important factors largely advanced to explain increases of Greenhouse Gases (GHS). The U.S and China are the largest emitter in the world with 21 percent and 15 percent respectively in absolute term (World Resources Institute, 2005). However, focusing on absolute pollutant level will gives a partial understanding and does not lead to completely understanding the overall reality about environment degradation. Thus, it is very important to have a deeper investigation in term of relative pollutants and in its key determinants. This is of great importance and for a particular interest especially when dealing with a countries characterized by high level of pollutant per capita such as CO2 emissions per capita or ecological footprint per capita. This paper investigates the relationship between environment degradation and economic growth as well as with some others key determinants of environment degradation in Qatar. This paper is mainly motivated by the controversy effects of the rapid economic development that have experienced Qatar in the last four decades due to its abounded hydrocarbon resources. This rapid economic growth has severely affected the environment quality of the country and has increased the need to preserve and protect its ecosystem including water, air and lands. The current situation of Qatar in term of environment degradation is very critical. For instance, according to the World Bank Indicators (WBI, 2011), Qatar is ranked the first in term of 퐶푂2 emissions per capita and the second in term of ecological footprint per capita according to the Living Planet Report of 2014. Following the WWF’s Living Planet Report of 2014, “if all people on the planet had the Footprint of the average resident of Qatar, we would need 4.8 planets”. Moreover, Qatar 2030 vision has given a high importance to questions related to air pollution, climate change and their impacts on economic sustainability. For example, three out of the four pillars of Qatar 2030 vision are directly or indirectly related to preserving the environment2. Air pollution, global greenhouse gases (GHG), water pollution and water resources degradation are among the most serious environmental concerns that actually encounter the country. In addition, the needs for a high level of economic growth accompanied with a rapid increase of urbanization and international trade have made a strong pressure in the country energy use considered as the main source of CO2 emissions of the country. The Qatar situation in term of air pollution is also very worrying, the local air pollution levels in Qatar has frequently exceeded recommended levels and are more time higher than the international standards. In fact, compared to the WHO’s standards of the 24-hour and annual averages concentration of 50 휇g/m3and 20 휇g/m3 for PM10 the Qatar’s national air quality standards are far from these values. For instance, the values for PM10 is around 150 휇g/m3 for 24 hours average concentration and around 50 휇g/m3 for the annual average concentration (see the world health 2 The four pillars of Qatar 2030 visions are : (1) economic development, (2) social development, (3) human development, and (4) environmental development. 2 organization, WHO). These high level have increased the likelihood of diseases related to the respiratory system such as asthma, chronic obstructive pulmonary disease among many others. Given that situation, several important questions arise for this country. 1. Is a continuous rise of income positively monotonically associated with environmental degradation proxy? Or is the relationship nonlinear (U-or Inverted U-shaped)? 2. Which are the most important determinants (macroeconomic and financial variables) of environmental degradation? 3. What it the type of the relationship between environmental degradation proxy and its determinants? Is the relationship linear or non-linear? 4. Is the environment degradation- economic growth nexus environmental degradation proxy dependent? 5. Finally, how is the causal relationship between environment degradation proxies and its key determinants? The answers to these questions are critical at this stage of economic development of the Qatar economy and are of particular interest for building and designing the appropriate strategies for reducing environment degradation. The first question which is related to the relationship between environment degradation and economic growth can be answered by examining the type of the relationship between the environment degradation proxy and income proxy. In the empirical literature, recent studies have focused on whether the Environmental Kuznets Curve (EKC) hypothesis holds or not. Following the EKC hypothesis, the relationship between economic growth and environment degradation is inverted-U-shaped. From the economic perspective, this means that initially economic growth increases environment degradation and then declines it after a threshold point of income per capita. More specifically, at initial level of economic growth, an increase in income is linked with an increase in energy consumption that raises environment degradation. However, after reaching a critical level of income, the spending on environment protection is increased, and hence environment degradation tend to decrease. In the economic theory, three effects-types has been advanced as a channels through which economic growth impacts environment quality. The first channel is the scale effect which postulates that as the economy develop more inputs are needed in term of energy consumption, water, etc… inducing more degradation of the environment quality. The second channel is the composition effect following which as the economy develop the economic structure changes and switch from an agriculture based economy to an industrial based economy, and then to a service based economy. All along these switching processes, the needs of the economy changes and their impact on the environment changes also. Finally, the last channel corresponds to the technique effect which has a positive effect on the environment quality and which drives the curve downward. Following this relationship, to improve environmental quality the best way is to become rich (see for instance Beckerman, 1992; and Cole, 1999). From an econometrical or statistical perspectives, the EKC hypothesis can be tested by estimating the EKC equation which relies the environment degradation proxy to the real GDP and to a nonlinear term of the real GDP (the squared real GDP). 3 If the EKC hypothesis holds then the real GDP and the squared real GDP have respectively a positive and negative signs. This EKC hypothesis has been firstly introduced by Kuznets (1955) when examining the relationship between economic growth and income inequality which shows that this relationship is inverted U-shaped. Grossman and Krueger (1995) are the first to examine this relationship between environment degradation and economic growth in their seminal paper published on the Quarterly Journal of Economics. They found that this relationship is inverted U- shaped which validates the EKC hypothesis. However, until now there is no consensus about the true nature of the relation between real GDP and environment degradation. Evidence for the EKC hypothesis is very mixed. Overall, the results seem to depend in many factors including the specification, the pollutants and the econometrics technique used