20/06/2024
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Keywords: Economic growth; Financial development; Globalization; Environment; EKC; Pollution haven hypothesis; Pollution improvement hypothesis; COP21
The topic of environment is always at the heart of the United Nations' international agenda and requires the cooperation of all countries. In order to bring economic policy implications for Asian countries towards sustainable environmental development strategies, a research group of students at the University of Economics Ho Chi Minh City (UEH) conducted a research project: “The impact of economic growth, financial development and globalization trends on environmental quality: Empirical evidence from Asian countries”.
Environment and climate change
Climate change has been an urgent global issue, posing unprecedented challenges to human existence and development. Global warming, rising sea levels, plant and animal extinction, food scarcity, etc. are serious consequences that we must face. According to NASA (2022), the global average temperature increased by 1.31°C compared to 1909, sea level rose by 98.5 mm compared to 1993 and atmospheric CO2 reached its highest level in the past 650,000 years. The Intergovernmental Panel on Climate Change (IPCC) warns that melting ice caps, rising sea levels, and rising temperatures could destroy 50% of coastal areas. Losses due to climate change are higher than both world wars.
Because of this, a global agreement - the Paris Agreement - was signed at the 21st Conference of the United Nations Framework Convention on Climate Change (COP21) with the goal of limiting global temperature increases below 2°C and aiming for 1.5°C. However, the actual results still fall short of expectations as the climate report for July 2023. The hottest month in the past 120,000 years shows that global warming will far exceed 1.5°C. Faced with this situation, the 26th Conference of the United Nations Framework Convention on Climate Change (COP26) urged countries to commit to reducing emissions and adapting to climate change.
Understanding the cause is the key to solving it. Accordingly, CO2 emissions from economic activities, especially in developing countries, are stated to be the main cause of climate change. However, in the process of researching pollutants, there are still many controversies and no common consensus has been sought in both theory and empirical examination of the impact of economics on environmental issues in terms of economic growth, financial development and globalization of the world's economies. This is a great motivation for the UEH research team to carry out this project with data collected from 34 countries in Asia during the period 2006-2019.
Key findings
Through regression econometric method with the models of Pooled OLS, fixed effects model (FEM), random effects model (REM) and feasible GLS (FGLS), the UEH research team has examined the following typical impacts:
*Impact of economic growth on environmental pollution (CO2 emissions)
Economic growth increases CO2 emissions in the early stages and will recover the environment in the later stages of development. This estimated result is consistent with the implication of an inverted U-shaped impact between economic growth and environmental pollution according to the Environmental Kuznet Curve - EKC hypothesis (Grossman and Krueger, 1991). The results imply that the characteristics of a developing economy always place emphasis on development associated with industrialization, aiming at economic productivity goals and often with environmental concessions. Evidence of the existence of EKC has given a positive signal to the environment: when growth reaches a "threshold", instead of just focusing on economic development goals, countries in Asia will tighten more on environmental control and improving sustainable production technology while increasing the use of alternative energy, from which growth will bring positive feedback to environmental quality in the future.
*The impact of financial development on environmental pollution
Financial development reduces environmental pollution, meaning that countries with more developed financial markets will have higher environmental quality because investment capital flows will be effectively distributed to green projects. Businesses will benefit from easier access to capital and reduce the burden of capital costs for technological innovation (Patel and Mehta, 2023; Dogan et al., 2022).
*The impact of economic globalization on environmental pollution
The expansion of globalization reduces CO2 emissions into the environment. It can be recognized through research that the "environmental improvement effect" from integration spread is significantly effective in the group of low-income and developing countries (Koengkan et al., 2020; Bilgili et al., 2019). Concurrently, the study implies that Asian countries, especially developing countries, have been more careful and more closely managed the impacts of moving pollution sources during the integration process through "dirty" FDI flows according to the "Pollution Haven Hypothesis". The estimated results contribute to supporting the economic integration process in Asian countries, which is an inevitable process in the current context.
Policy implications for Asian countries
Based on the research results, the UEH research team seeks to understand the correlation and the impacts of economic growth, financial development and globalization trends on the environment, thereby suggesting considerable scientific implications in developing sustainable development policies and solutions to protecting the environment in Asian countries, especially in a context where globalization is an inevitable trend.
Accordingly, countries need to mandate stricter environmental regulations listed as establishing specific market entry standards for businesses in pollution-causing industries and fields. In addition, it is necessary to establish taxes and fines on environmental protection so that businesses are more cautious in production and business activities, and do not indiscriminately carry out polluting activities. It is necessary to set regulations limiting emissions. Enterprises must disclose and publicly announce information related to the environment and emission treatment measures. In particular, it is necessary to strengthen guidance, supervision, and inspection of enterprises' compliance with environmental protection laws. And, mechanisms and policies to attract investment in the fields of exhaust gas treatment, wastewater, solid waste, and urban environmental sanitation should be a must. It is essential to improve environmental regulations on sanctions for violations with a law strong enough to serve as a deterrent as well as conducting additional research on sanctions based on actual discharge levels instead of following the current maximum or minimum level.
To promote "green finance" in Asian countries, there must be development of the financial system and establishment of investment selection criteria to promote economic growth while still focusing on environmental protection. The concept of "green finance" refers to investment activities that involve two-way interaction between environment and finance. Related terms include responsible investment (RI); environmental, social and governance (ESG); sustainable finance and finance related to climate change. Green finance promotes the development and use of new energy sources, the production of green goods, and the application of ecological agriculture by providing loans with preferential interest rates to businesses. Concurrently, it limits new projects that are likely to cause pollution from businesses and applies high interest rates. In banks or credit institutions, lenders can develop green financial products listed as stocks, green bonds, and green markets for economic growth, further improving green financial development policies associated with environmental protection agreements and treaties at international, regional, national and individual bank levels. For green finance loans for businesses, there should be conventional loans, public loans, public guarantees, public funds, and public insurance for businesses that have contributed to building green finance, thereby, contributing to minimizing negative impacts on the environment and promoting a green industrial ecosystem. In addition, Asian countries should promote the use of renewable energy to minimize negative impacts on the environment as their economies develop.
Promoting the shift to using renewable energy: Research results indicate that there is a positive correlation between the impact of fossil fuel use and environmental pollution in Asia. Therefore, additional policies need to be implemented to further improve energy efficiency. For example, upgrading the energy architecture by exploring cleaner and renewable energy sources (e.g. wind power, hydropower, and solar power) can play an important role in preventing energy crises and increasing energy efficiency, helping to reduce emissions and realize low-carbon development. It is necessary to encourage investment and provide more resources to develop businesses in the field of renewable energy.
In addition, each country needs to be more determined to seriously comply with international environmental agreements, which is specifically the Paris Agreement on climate change of countries in the United Nations in a common effort to protect the environment and combat climate change at COP21. Concurrently, the international community needs to increase pressure on countries that are irresponsible in their commitment to environmental protection.
The research article The impacts of economic growth, financial development and globalization trends on environmental quality: Empirical evidence in Asian countries can be found HERE.
Authors: Nguyen Sy Binh, Nguyen Ngoc Huyen - University of Economics Ho Chi Minh City (UEH).
This article is part of the Green Research Community series with the message "Research Contribution for UEH Living Lab Green Campus". UEH cordially invites the community to watch the next Green Research Community issue.
*In order to maximally facilitate the development of the "UEH Green Researcher Community", community members will be able to attend research methodology classes related to the topic of Living Lab and Green Campus. In addition, if their product meets the required standards, the research team will be awarded a Certificate from the UEH Sustainable University Project Board and financial support.
This article contributes to SDG 8 - Decent work and economic growth:
Goal 8 is to promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. Maintain economic growth rates per capita in accordance with national circumstances and, in particular, achieving at least a 7% annual growth rate of gross domestic product, achieving higher levels of economic productivity through diversification, upgrading and innovation, and promoting development-oriented policies that support productive activities, creating sustainable jobs, entrepreneurship, creativity and innovation. In addition, improving global resource efficiency in production and consumption, protecting labor rights and promoting safe and secure working environments for all workers, strengthening the capacity of domestic financial institutions to encourage and expand access to banking, insurance and financial services for all. Developing and implementing a global youth employment strategy and implementing the International Labour Organization's Global Employment Pact,...
SDG 13 - Climate action:
Taking urgent action to combat climate change and its impacts by strengthening resilience and adaptive capacity to climate-related hazards and natural disasters in all countries, integrating climate change measures into national policies, strategies and planning.
Improving education, raising awareness and enhancing the capacity of individuals and institutions on climate change mitigation, adaptation, impact reduction and early warning. Fulfilling the commitments of developed country Parties to the United Nations Framework Convention on Climate Change, promoting mechanisms to enhance the capacity for effective climate change planning and management in the least developed countries.
SDG 17 - Partnership for the goals:
Goal 17 is to revitalize the global partnership for sustainable development. To achieve this in the financial sector, it is necessary to strengthen domestic resource mobilization, to ensure that developed countries fully implement their official development assistance commitments, to mobilize additional financial resources for developing countries from multiple sources, and to support developing countries in achieving long-term debt sustainability through appropriate policies.
In the technological sector, it is necessary to strengthen regional and international cooperation on access to science, technology and innovation. Promote the development, transfer, and dissemination of environmentally sound technologies to developing countries.
Regarding capacity building, it is necessary to strengthen international support for effective and targeted capacity-building in developing countries to support national plans to implement all the Sustainable Development Goals.
In the area of trade, promote a universal, rules-based, open, non-discriminatory, and equitable multilateral trading system under the World Trade Organization. Implement in a timely manner duty-free and quota-free market access on a lasting basis for all least developed countries in accordance with World Trade Organization decisions
News and photos: The authors, UEH Youth Union - Student Association, UEH Department of Marketing and Communication.
