Exploring the nexus between human capital and environmental degradation: The case of EU countries

Abstract

Human capital investments have a vital role in economic growth. Therefore the effects of human capital on the environment should be analyzed for sustainable economic growth. This paper contributes to the debate on the nexus between human capital and environmental degradation. Based on 21 EU countries' panel data over the period 1994-2018, this study aims to analyze the relationship between human capital and environmental pollution in different financial development levels. We employed the panel smooth transition regression model (PSTR) to assess the nexus between the variables. According to the estimation results, human capital decreases carbon emissions in the low growth regime whereas increases in the high growth regime. Besides, human capital increases carbon emissions in both low regimes of financial development and human capital, and decreases in high regimes. The analysis indicated that as human capital improves, there will be more innovation to protect the environment, and thus there is less environmental degradation.

Keywords: Environmental degradation; Human capital; Innovation; PSTR Model.