Relationship between Environmental Quality and Economic Growth in Developing Countries (based on Environmental Performance Index)

Abstract

In order to evaluate the development levels of countries, economic growth along with environmental quality account for important indices nowadays. The impacts of environmental quality (based on environmental performance index), the direct foreign investment, and trade openness on economic growth in selected developing countries have been scrutinized in the present study. In the present study the Auto Regressive Distributed Lag Model and ARDL bounds test methods were adopted in panel data pertaining to the data of 1983 to 2013 time span. According to the results, a co-integration was found among the model-based variables if economic growth was determined as the dependent variable. The trade openness showed a significant long-run relationship based on the estimated coefficients. Results indicate a positive and significant impact of environmental performance index on economic growth. Moreover, the variable foreign direct investment revealed a positive and significant confirmation. Considering the diagnostic tests findings at 5% level, such problems as serial correlation, functional form, model misspecification, and heteroscedasticity are not present in the estimated model.