Economic instability and pollution emissions in developing countries: A panel data investigation

Abstract

Developing economies are characterized by unstable and volatile growth performance. Some recent studies argue that this can potentially undermine their environmental quality. This study tests the impact of macroeconomic instability on pollution emissions for a large panel of developing countries. Thus, we extend the standard environmental Kuznets curve (EKC) framework and include the indicator of economic instability in addition to the other variables, including income, income squared, financial development, FDI, and trade openness. For this purpose, we use the annual dataset of 34 developing countries over the period 1985–2019. The empirical analysis comprises both short-run and long-run relationships among the selected variables, using panel cointegration and the Panel Vector Error Correction Model (P-VECM). The estimated results confirm our hypothesized pollution-enhancing effects of economic instability on the sample economies. Furthermore, we confirm the validity of the EKC hypothesis in the sample economies. These findings suggest that developing economies should ensure economic stability to control their CO2 emissions.