Economic Liberalization and Environmental Degradation

Abstract

Using panel data from 1995 to 2008 for 114 countries, this paper investigates empirically the relationship between economic liberalization and one aspect of environmental degradation, air pollution, as measured by per capita carbon dioxide (CO2) emissions. The paper recognizes that economic liberalization influences pollution emissions per capita not only directly, but also indirectly through its impact on per capita income. The results show that, although the direct effect of economic liberalization on air pollution is negative and statistically significant, the total effect of economic liberalization on CO2 emissions per capita is positive for all countries included in the sample. The net positive effect suggests that, all other things equal, countries that will be characterized as more economically liberalized have higher per capita air pollution levels.