Middle-income countries are currently undergoing massive structural changes towards more industrialized economies. In this paper, we carefully examine the impact of these transformations on the environmental quality of middle-income countries. Specifically, we examine the role of sector value addition to GDP on CO2 emission nexus for middle-income economies controlling for the effects of population growth, energy use, and trade openness. Using recently developed panel methods that consider cross-sectional dependence and allow for heterogeneous slope coefficients, we show that energy use and growth of industrial and service sectors positively explain CO2 emissions in middle-income economies. We also find that population growth is insignificantly associated with CO2 emission. Hence, our paper provides a solid ground for developing a sustainable and pro-growth policy for middle-income countries.
Environmental degradation measured by CO 2 emissions is a significant challenge to sustainable economic development. Owing to significant differences in the empirical relationship between the economic growth and CO 2 emissions and policies adopted by different countries to overcome the challenge are not decisive. This study aims to generalize our knowledge about the relationship between CO 2 emissions and economic growth across the world for 1980-2009 period. Besides, it explores whether the transformation of different economies (e.g. agrarian to industrial and industrial to sophisticated service economy) over the past few decades yielded any significant positive impact towards sustainable economic development by reducing the level of CO 2 emission. Empirical results suggest (i) except for high-income-countries, Environmental Kuznets Curve (EKC) is a general phenomenon across the world, and (ii) the transformation of different economies towards a service economy has produced more pollution in high income countries and less pollution in low and middle income countries.
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