Does Economic Policy Uncertainty Cause Environmental Pollution? Fresh Evidence From Developed Countries

Abstract

The industrial revolution has dramatically altered the environment and ecosystem. So many scholars have empirically attempted to reveal the most influential anthropogenic factors on environmental degradation. For this purpose, this study examines the leading determinants of CO₂ emissions in the context of economic policy uncertainty (EPU) for 14 developed countries within the framework of the extended stochastic impacts by regression on population, affluence and technology (STIRPAT) environmental model from 1997-2018. For empirical modeling, CO₂ emission is treated as the dependent variable, which is a strong proxy for environmental degradation. In addition to the GDP per capita, population density, and energy intensity (a proxy for technology), the basic model is extended to include variables such as EPU, renewable energy, trade openness, globalization, and information and communications technology (ICT) index. While the estimation results by the dynamic conditional correlation (DCC) estimator, which are also supported by robustness analysis, suggest that GDP per capita and energy intensity are the main contributors to emission levels, population density has no significant impact on CO₂. Furthermore, while renewable energy (in model 2), trade openness (in model 4), and globalization (in model 6) have negative impacts on CO₂ emission, technology (in models 5 and 6) and EPU (in model 6) make marginal contributions to CO₂.

Keywords: DCC estimator; Developed countries; EPU; Environmental degradation; STIRPAT model.