Economic Growth And Environmental Quality In Ethiopia An Environmental Kuznets Curve Approach

In an attempt to examine the growth-environment relationship in general, and in order to investigate an environmental Kuznets curve (EKC) for carbon dioxide (CO2) emission in particular, this study employs data spanning from 1981 to 2013. The Johansen co-integration test and error correction model (ECM) techniques were applied to capture both long-run relationships and short run dynamics in our system. The estimation results from these two techniques confirm the existence of EKC for CO2 emission in Ethiopia. In order to capture the effect of international trade, the study incorporates the ratio of manufacturing export to manufacturing gross domestic product (GDP) and the ratio of manufacturing import to manufacturing GDP. The estimated parameters for these two variables are found to have statistically significant effect. The econometrics procedure, however, does not show which factor actually contributes for a reduced emission. Thus, an increase in per capita income alone should not be considered as the solution of environmental problems. It needs environmental policies, regulations and/or standards in combination with strong institutions to enact the environmental policies. Hence, in the analysis of the growth-environment relationship, future research should focus on incorporating variables representing environmental policies, international trade, sectoral output composition of the economy or democracy.

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