The dynamic links between carbon dioxide (CO2) emissions, health spending and GDP growth: A case study for 51 countries
Introduction
Over the past two decades, the interaction between economic growth, environmental degradation and health spending costs have become a topic of increasing importance in the economic literature for both developing and developed countries. These interactions between growth, environment and health spending are both multiple, complex and important. Such literature can be divided into three areas of research. The first area of research is to verify the hypothesis of the environmental Kuznets curve or an inverted U curve between economic growth and environmental quality indicators (CO2, SO2, Deforestation, volatile particles, etc.). This hypothesis, proposed by Grossman and Krueger (1995), studied the relationship between the various indicators of the environment and the level of income in a country, they concluded that no evidence shows that the quality of the environment deteriorates progressively with the growth of the country, on the contrary, for most indicators, economic growth brings an initial phase of deterioration, followed by a phase of improvement. As regards, Selden and Song (1994) have hypothesized that the relationship between economic growth and environmental quality, whether positive or negative is not fixed along a path development; it can change sign as a country reaches a level of income at which the application of citizens is to provide an efficient infrastructure and a cleaner environment. Most work is intended verifying the environmental Kuznets curve (EKC) on relationship between CO2 emissions and per capita income is inconclusive. For authors like Panayotou (1993), Bimonte (2002), MartinezZarzo et Bengochea-Morancho (2004), Akbostancı et al. (2009), Lise (2006), Mouhamadou Moustapha (2007), Saboori et al., 2012a, Saboori et al., 2012b, and Saboori and Sulaiman (2013) have found the existence of the EKC hypothesis many other have report evidences against the hypothesis (e.g., Holtz-Eakin and Selden (1995), Cole et al. (1997), Dinda (2004); Fodha and Zaghdoud (2010); Kijima et al. (2010)).
The second area of research focuses on the interaction between health spending and economic growth. The majority of previous studies are interested with the questions of measuring the size of the income elasticity of health care, and on its policy implications for the financing and distribution of healthcare resources (Lothgren (2002); Muysken et al. (2003); Baltagi and Moscone (2010); Wang (2011); Mehrara et al. (2012); Odubunmi et al. (2012); Oni (2014); Kurt (2015)). Whereas, their results show that there are two hypotheses about interactions between health spending and economic growth: The first assumption is that health care is a luxury goods, which indicates that it is a commodity like any other and it is best left to market forces; The second hypotheses is that health care is a necessity, often to support the views of more government intervention in the health care sector.
Finally, the third area of research focuses on the interaction between health spending and environmental degradation (CO2 emissions). Though, much less attention from academic researchers was paid to this area of research compared with the other two field. Several studies have confirmed the positive relationship between health spending and emissions of pollutants, including Wordly et al. (1997), Brunekreef and Holgate (2002), Mead and Brajer (2005), Narayan and Narayan (2008), Janke et al. (2009), Remoundou and Koundouri (2009), Yazdi et al. (2010), Ahmad Assadzadeh et al. (2014) and Beatty and Shimshack (2014). We can observe also that most previous studies have focused on the effect of the environment (CO2 emissions, environmental quality and pollution) on health spending. Just a few empirical studies have focused on the interaction between health spending and CO2 emissions. We can thus conclude after the economic literature that CO2 emissions give health risks to human populations and this can lead to a reduction in economic growth. The relationships between these two variables are not only difficult to shape, but they can also interact simultaneously.
This paper, however, applies the more flexible GMM technique for an empirical analysis of the relationship between carbon dioxide emissions, health spending, and economic growth in 51 countries. The present wallpaper is different from the previous studies in the following ways. First, we apply a dynamic simultaneous equation estimation to examine the following combined causality effects: (1) from health spending and CO2 emissions and to economic growth; (2) from economic growth and health spending to CO2 emissions; and (3)) from economic growth and CO2 emissions to health spending. In contrast to the simple equation method, the system estimation can bring up the simultaneities among of the endogenous variables specified in the system and identify the likely two-way effects between them. However, to the best of our knowledge, no empirical studies in the literature have examined the relationship between environment, economic growth and health spending through dynamic simultaneous equation models. Second, this study is different to previous studies in that it uses the technique of the Generalized Method of Moments (GMM) dynamic panel. The system GMM technique explores the channel variable (economic growth) through which CO2 emissions can probably affect health spending. This channel variable is employed to track down the effect of environmental change on health spending, and to allow if increased CO2 emissions is linked to more health expenditures in three income groups countries or vice versa.
The remainder of this paper is structured as follows. Section 2 presents a brief literature review on environment-health spending-growth nexus. Section 3 describes the data and methodological framework. Section 4 presents the empirical results. Section 5 presents the conclusions and the recommendations.
Section snippets
Review literature on environment-health spending-growth nexus
The nexus between carbon dioxide emissions, health spending and economic growth have been a subject of debate for many recent studies, and has done so in relation to a number of different countries and regions for the past two decades. The literature on the relationship between the three variables suggests four hypotheses: growth, conservation, feedback and neutrality.
The model
The starting point of any theory of growth is the production function, that is to say, the relationship between the product (output) and inputs (input) of the production process. The production function establishes the relationship between output and inputs that contribute to its realization. We apply a Cobb-Douglas production function with constant returns to scale similar to Bloom et al. (2004), Hartwig (2010), Ahmed et al. (2012) and Ben Aissa et al. (2014), for examine the relationship
Empirical results
Before estimating and show the relationship between CO2 emissions, health spending and economic growth, capital, population ageing, urbanization and trade openness we require determining that these variables are stationary in level. For this, we used two unit root tests in panel proposed by Breitung (2001) and Im and Pesaran (2003) of these variables. These tests test the alternative hypothesis of no unit root against the null hypothesis of the presence of unit root. So the goal is to decide
Conclusion and recommendations
In this article, we used simultaneous equation models and the method of moments generalized (GMM) to examine the causal relationship between CO2 emissions, health spending and economic growth for a set of fifty-one countries over the period of 1995–2013. The results of estimates show that there are bidirectional causal between CO2 emissions and economic growth and between GDP per capita and health spending for all the three panels. So, countries look at the investment needs to promote
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