Economic growth and environmental quality: An econometric and a decomposition analysis

The purpose of this paper is to explore the emissions of CO₂ in Italy during 1861 to 2002. The Environmental Kuznets Curve (EKC) is applied to explore the relationship between CO₂ emission and Gross Domestic Product (GDP) per capita. An Index Decomposition Analysis (IDA) is also applied to investigate changes in emissions between 1990 to 2002. Several factors contribute to change in the emission of CO₂. These factors generally include a scale effect, a technological effect and a composition effect.

The main discussion in the paper is about the exiting of EKC in Italy and how a decomposition analysis can be used to look behind the time series of the environmental accounts.

The findings in the paper indicate the typical inverted “U” form of EKC is not confirmed with our data set for Italy. According our econometric results, there is a positive relationship between economic growth and CO₂; following the trend, the maximum emission of CO₂ per capita in Italy would be reached when the GDP per capita will be about 26900 US$ (turning point). Basically, two major forces have determined the increase of CO₂ pollution in Italy over time: eco‐efficiency (pollution per monetary unit of output) and volume effect (volume growth of Value Added).

The decomposition method performed in this paper allows us to analyse which sectors are responsible for CO₂ emissions and quantify the magnitude of the theoretical factors expected to influence the emission. The method used for the decomposition analysis can also be applied by countries with lack of time series Input‐Output data.

The investigation in the paper of the existing of EKC allows to know at which level of income the CO₂ emissions will start decreasing in Italy. The analysis is based on a long time series (141 years). Decomposition analysis can be considered a tool, which helps to detect whether the increase of CO₂ is mainly due to economic growth or technological change.