Economic growth, trade, human development and emissions in the BRIC countries

The recent wave of disasters has once again brought the issue of global warming to the fore. Turkey experienced a temperature of 49.1 ° C, the highest ever recorded in the country. Belgium, the Netherlands, Switzerland and Germany suffered a climate catastrophe that turned entire cities into rivers. In China, the city of Zhengzhou experienced a year of rain in three days. According to the WMO, all of these disasters are due to the fact that the earth is 1.1 to 1.3 ° C warmer than in the pre-industrial era.

One of the main indicators of a warmer earth is the concentration of carbon dioxide in the atmosphere. To contain the concentration of carbon dioxide, the Kyoto Protocol was signed with the aim of minimizing the damage of global warming and climate change by taking measures to reduce greenhouse gas emissions. Although the BRIC countries (Brazil, Russia, India, China) have signed the Kyoto Protocol, environmental concerns remain due to their growth potential. World Bank data on carbon dioxide emissions shows that BRIC countries’ emissions increased for these economies between 2011 and 2015, with Brazil increasing by 1.15%, Russia by 12.6%, India 1.7% and China 6.7% (World Bank, 2015). These four countries, with a combined population of 3 billion people and a GDP of $ 16 billion, will have a huge direct impact on global emissions.

In light of the growth potential of these countries, a relevant question is how much climate damage these countries can cause, and what policy decisions can be made to mitigate the impact. In order to answer these questions, in our article, we examined the causal associations between economic growth, carbon dioxide emissions, human development, and trade volume using a simultaneous equation panel data model for BRIC countries. We used structural equations to examine the influence of (i) carbon dioxide emissions, volume of trade, human development and other variables on economic growth, (ii) economic growth, volume of trade, human development and other variables on carbon dioxide emissions, (iii) economic growth, carbon dioxide emissions, human development and other variables on trade volume, and (iv) economic growth, carbon dioxide emissions, volume of trade and other variables on human development.

The main findings of the study indicate that there is a two-way link between carbon dioxide emissions and economic growth, i.e. on the one hand, the economic growth induced by fossil fuels is at the origin of carbon dioxide emissions. On the other hand, an increase in carbon dioxide emissions could create risks to the health of the workforce, and as a result, economic growth is affected. The existence of a two-way link is found between carbon dioxide emissions-human development, trade volume-human development, economic growth-human development, and carbon dioxide emissions-trade volume. It has also been found that the volume of trade directly affects economic growth. Apart from this, the results also validate the existence of an inverted U-shaped relationship between carbon dioxide emissions and economic growth, also known as the Kuznets environmental curve. This indicates that carbon dioxide emissions are starting to increase with economic growth. When economic growth reaches a threshold, rising living standards create demand for better environmental quality. This environmental pursuit begins to decrease the level of carbon dioxide emissions.

The policy implications of the study can be put forward based on the directions of the causal associations established in the study. The presence of an inverted U-shaped relationship between carbon dioxide emissions and economic growth indicates that environmental pressure in the form of ambient air pollution can affect the level of hygiene of the workforce. and, therefore, affect economic growth. In order to mitigate this effect, policymakers should place more emphasis on green power generation initiatives, which can be developed in-house or imported through technology transfer.

Empirical evidence for the latter can be visualized by the feedback between carbon dioxide emissions and trade volume, and carbon dioxide emissions and human development, respectively. By importing green technologies, the hygienic state of the workforce can be maintained, and this import need has been generated by the current state of human development in the BRIC countries. This has been validated by the feedback between trade volume and human development. Finally, in addition to technology transfer, other forms of trade can stimulate economic growth, catalyzing FDI spillovers, which is indicated by the one-way causal association of trade volume with economic growth.

The study is available here

(This study is written by Sudipta Sen, Assistant Professor, Jindal School of Banking & Finance; and Avik Sinha, Associate Professor, Goa Institute of Management)

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