Analyzing the economic development-driven ecological deficit in the EU-15 countries: new evidence from PSTR approach

Abstract

This study empirically analyses the nonlinear impact of economic activities on ecological balance indicators that estimate the balance between economies' pressure on nature and the biologically productive resources areas affected by human activity and the earth's ecological carrying capacity. In measuring this balance, ecological balance sheet indicators are divided into four sub-components; cropland, forest area, fishing grounds and grazing land. The sample of the study consists of the EU-15 countries over the period 1995-2016. In order to render the study robust with respect to econometric issues like potential endogeneity bias, cross-country heterogeneity, time instability and nonlinearity, the study adopted panel smooth transition regression (PSTR) method. The empirical findings reveal that the economic activities carried out up to a certain threshold level do not force the ecological balance as nature can compensate for the resulting externalities, but beyond this threshold, waste accumulation and pollution exceed nature's capacity to absorb. Consequently, the results of the study are not in line with the expectation of the Environmental Kuznets Curve (EKC) hypothesis with inverted U-shaped curve, but indicate a need for implementation of active environmental policies for the improvement of the environment.

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