The relationship between economic globalization and ecological footprint: empirical evidence for developed and developing countries

¹Hatay Mustafa Kemal University 2Kirsehir Ahi Evran University

Purpose. The aim of this study is to examine the relationship between economic globalization and the ecological footprint in countries with different levels of development using a Feasible Generalized Least Squares (FGLS) analysis.

Methodology / approach. The study covers the years 1970 to 2017 for 65 developed and developing countries. The ecological footprint is the dependent variable in the study's model, and the GDP and KOF Globalization Index (KOF) index are the independent variables. The CADF panel unit root test, which takes into account cross-sectional dependence, was used to choose the appropriate test method for the analysis. Feasible Generalised Least Square and Westerlund ECM panel cointegration analyses were performed for model estimation.

Results. Economic globalization and ecological footprint have a considerable relationship, according to the results of FGLS and Westerlund cointegration analysis. Economic globalization has a long-run negative impact on the ecological footprint. Environmental problems are being addressed as a result of more economic globalization, faster technology development, and consequently decreased usage of natural resources. Furthermore, as globalization and communication technologies develop, societies will have more information on the importance of the environment. As a result, they can show more eco-friendly behavior.

Originality / scientific novelty. Several studies in the literature include the cointegration relationship between economic globalization and ecological footprint. Although there are few studies on this topic in the literature, one aspect that distinguishes this study is the use of an estimation method that takes into account the cross-sectional dependent, second-generation unit root tests, FGLS cointegration analysis, and Westerlund ECM analysis.

Practical value / implications. The importance of the findings is that increased economic globalization has a negative effect on the ecological footprint. As economic globalization increases, so does communication technology, as well as international trade. Individuals become more environmentally conscious as a result of communication, which generally reduces ecological footprint.

Key words: ecological footprint, economic globalization, environment, panel analysis.

Introduction and review of literature

The globalization trend that began in the 1980s affected all countries around the world, intensifying competition among countries to achieve economic progress (Saleem et al., 2019). Globalization has the potential to spur economic growth or further industrialization (Wiseley, 2020). Many studies show that globalization leads to economic growth (Ying et al., 2014; Gurgul & Lach, 2014; Samimi & Jenatabadi, 2014; Tekba§, 2021; Chang & Lee, 2010; Kylycarslan & Dumrul, 2018; Dreher, 2006; Rao & Vadlamannati, 2011; Potrafke, 2015).

However, increasing competition has forced all countries to make greater use of their natural resources in order to achieve higher growth rates (Saleem et al., 2019). The goal of industrial and economic growth, supported by the process of globalization (Langnel & Amegavi, 2020), undoubtedly helps in development, but it also creates negative externalities in the manner of environmental degradation and ecological pollution (Shahzadi et al., 2019). Thus, according to Shahzadi et al. (2019), one of the main causes of global environmental change is the globalization process. On the other side Ahad & Khan (2016) asserted that globalization contributes to environmental damage in both the short and long run.

Many economies have achieved high growth rates and increased welfare as a result of globalization, at the expense of environmental quality. While growth and development have been achieved as a result of increased competition and striving for industrialization, climate change and global warming have also begun to increase. The costs of greenhouse gas emissions (GHG), of which carbon emissions represent approximately 60 %, have begun to raise concerns (Majeed & Mazhar, 2020). As a result, empirical studies on the environmental damage caused by globalization have been published in the economics literature.

This has led to empirical studies in the economic literature on the environmental damage caused by the excessive use of natural resources as a result of the growing desire caused by globalization. Studies have been conducted to investigate the relationship between growth and the environment in general, and the search for a relationship between environment and development begins with the Environment Kuznets Curve (EKC) (Sharif et al., 2019).

S. Kuznets developed the Kuznets Curve in 1955 to demonstrate the relationship between income distribution and economic growth. The hypothesis known as the “inverted U” or “bell curve” in literature argued that economic development increased the amount of income per capita, but income inequality also increased in the first stage of development, and then the increasing income inequality started to decrease after a certain turning point, depending on the continuation of economic development (Ko?ak, 2014).

Grossman & Kruger (1991) were the first to apply Kuznet's inverted U curve, which depicts the relationship between income distribution and economic growth (Qetin & Saygin, 2019). Grossman & Krueger (1991) discovered that pollutants like sulfur dioxide and smoke rise with lower national income levels but fall with higher income levels. That is, pollution rises with GDP at lower income levels before reaching a peak and then falling with GDP at higher income levels.

However, no reference was made to the Environmental Kuznets Curve (EKC) in this study, which identified an inverse U relationship between economic growth and environmental pollution. Panayotou (1993) coined the term “Environmental Kuznets Curve” to describe the inverted-U-shaped relationship discovered in the studies (Qetin & Saygin, 2019).

Carbon dioxide emissions (CO2) in particular were used to put the curve to the test (EKC). The Environmental Kuznets Curve (EKC) states that pollution increases during the early stages of economic growth but reverses when per capita income reaches a certain level, implying that economic growth leads to environmental improvement at high-income levels, expressing an inverted U-shaped relationship between pollution and income (Saleem et al., 2019; Mahmood et al., 2019; El Alaoui, 2017). Studies confirming the EKC hypothesis: Shahzadi et al. (2019), Destek (2020), Kalayci & Hayaloglu (2019), Shahbaz et al. (2015), Shahbaz et al. (2018b), Destek & Sarkodie (2019), Saleem et al. (2019), Charfeddine (2017), Qetin & Saygin (2019), Ozbek & Ogul (2022), Can et al. (2020). However, Tetteh & Baidoo (2022), Ahad & Khan (2016), Bataka (2021), Farhani & Ozturk (2015), Dinda (2006), Ko?ak (2014) show that Globalization causes environmental degradation through CO2, and they claim that this increase has no threshold value; that is, as globalization increases, CO2 levels rise indefinitely.

Because carbon dioxide emission (CO2) is regarded as the primary cause of global warming (Can et al., 2020), it has been primarily used to test the EKC hypothesis in recent years (Saleem at al., 2019). Aside from increased CO₂ emissions, many other factors contribute to environmental degradation, such as the overuse of natural resources, increased energy use, and the desire for greater economic development (Hassan et al., 2022). Excessive use of natural resources for high economic growth results in soil, water, and air pollution (Saleem at al., 2019). CO₂ emissions do not recognize soil and water pollution. These findings suggest the need for a more comprehensive indicator of environmental degradation. As a result, Wackernagel & Rees (1996) developed the ecological footprint (EF) to calculate environmental degradation. Unlike CO2 emissions, EF covers different dimensions of environmental degradation, including residential land, forest land, carbon footprint, grazing land, and ocean (Nathaniel, 2021).

In the empirical studies carried out in the literature review, it was observed that studies are usually conducted at the level of a country or a group of countries in a particular region, or the analysis is conducted by distinguishing between developed and developing countries. However, this study considered both developed and developing countries.

Globalization comes from the term “global”, which means “concerning the whole world”, “worldwide”, and “universal”, according to the Oxford English Dictionary (Karata§, 2016). Rudolf & Figge (2017) define globalization as “the establishment of transnational structures and the intensification of cultural, economic, ecological, political, technological and social processes in the international arena”. Globalization is a multidimensional concept that includes not only economics but also other disciplines such as sociology and politics (Shahbaz et al., 2018a). Globalization primarily led to free trade, and ultimately, through foreign direct investment and imports, it enabled the transfer of technology from developed to developing countries and increased the comparative advantages of different economies (Shahbaz et al., 2017). Globalization positively affects economic growth by increasing factor productivity and encouraging foreign direct investment, but indirectly increases energy consumption and environmental degradation (Sabir & Gorus, 2019).

As can be seen in Figure 1, globalization, as defined by the various definitions, can be divided into three major categories: economic, social, and political (Sabir & Gorus, 2019) and it affects every person all over the world in terms of socioeconomic-political aspects of life (Shahbaz et al., 2015). However, while economic, political, and social integration among nations has positive effects on the environment, it also has negative consequences (Ahmed et al., 2019). Through international mobility, personal contacts, and global media, globalization socially dissolves differences between people. Environmental awareness grows as a result of access to news and other resources via the Internet or international communication (Rudolf & Figge, 2017). Eco-friendly practices such as recycling, water conservation, energy conservation, and the use of renewable energy products can be supported through environmental sensitivity (Ahmed et al., 2019). Political globalization is the process by which nations are united through bilateral diplomatic negotiations, international organizations, and international agreements (Rudolf & Figge, 2017). This process increases countries' participation in global environmental agreements. According to international standards, countries are obliged to reduce energy consumption and emissions. Compliance with international standards for energy consumption and emissions will result in improved environmental quality (Ahmed et al., 2019). Economic “globalization” refers to the movement of goods, services, and capital across borders, as well as the increased integration of world economies (International Monetary Fund, 2008). Globalization can have an economic influence on the environment such as through trade and foreign direct investment (Ahmed et al., 2019). Indeed, economic liberalization is usually taken into account when evaluating how environmental degradation is occurring as a result of globalization or how it affects the environment. In this context, the environmental effects of globalization are investigated through foreign trade and foreign direct investment (FDIs), which represent trade in goods and services (Karasoy, 2021).

Figure 1. Relationship between globalization and environmental pollution

Source: formed by the authors based on a literature review.

In the literature, the consequences of globalization for the environment are divided into two types: indirect and direct (McAusland, 2008). Although the direct effects are underemphasized in the economics literature, they are the ones with the most serious consequences in the short run. The direct effects, on the other hand, emerge through transportation, specifically shipping, truck transportation, and aviation, which are realized as a result of the liberalization of foreign trade and globalization. The transportation techniques used as a result of increased international transportation have direct and negative effects on environmental quality through the emissions produced (Gallagher, 2009; Copeland et al., 2021).

Indirect effects are listed as scale effect, composition effect, and technical effect (Gallagher, 2009; McAusland, 2008; Panayotou, 2000; Bilgili et al., 2020; Karasoy, 2021; Grossman & Kruger, 1991; Cole, 2004; Copeland, 2009). Scale effects occur when trade liberalization causes the expansion of economic activity. Environmental pollution and resource consumption will rise in parallel with the output if the s cale is increased without changing the nature of economic activity (Gallagher, 2009). In other words, the scale effect means that, while all other factors remain constant, globalization will cause an increase in energy consumption in parallel with increases in the scale of economic activity (Shahbaz et al., 2018c). The scale effect refers to the response of domestic production levels to international trade and refers to the fact that trade can have effects such as growth (Copeland, 2009). In other words, globalization boosts economic activity by increasing transportation services as well as the production and consumption of goods and services (Bilgili & Ulucak, 2020). Because foreign trade enhances economic growth, economic activity rises as a result of growth, and environmental degradation worsens (Karasoy, 2021). However, an increase in economic scale without changes in the type of economic activity or in reducing or protecting pollution will have negative environmental effects (Copeland, 2009). In summary, the scale effect refers to the possibility of rising pollution as a result of economic growth caused by greater access to the market (Cole, 2004). Ahmed et al. (2019) argued that if the scale effect is dominant, globalization will increase energy consumption and emissions as economic activities increase. However, Panayotou (2000) has argued that increased trade will have a positive impact when it leads to better environmental protection through economic growth and policy development that encourages changes in product composition and technology that result in less pollution per unit of production.

The composition effect is caused by any change in trade policy (Grossman & Kruger, 1991) and refers to the effect of free trade on the composition of production between countries (Bilgili & Ulucak, 2020). Trade liberalization causes countries to change the composition of their production and consumption by specializing in activities where they have a comparative advantage (Cole, 2004). The composition effect can increase or decrease environmental degradation depending on the nature of the specialized product(s) (Karasoy, 2021). If the comparative advantage is due to differences in environmental regulations between countries, the composition of goods produced for foreign trade will aggravate existing environmental problems in countries with a relative lack of regulations (Gallagher, 2009). Each country will then tend to specialize in activities that are not strictly regulated by its government and will leave industries where the local costs of reducing pollution are relatively high (Grossman & Kruger, 1991). The Heckscher-Ohlin (H-O) theory in international economics, on the other hand, assumes that each country has a comparative advantage in industries that use the factor that it has in abundance (Gallagher, 2009). If the sources of international comparative advantage are abundance of factors and technical differences between countries, foreign trade liberalization will lead each country to transfer its resources to sectors that make extensive use of their plentiful factors (Grossman & Kruger, 1991). In terms of pollution, the H-O hypothesis might be claimed that a developing country with less severe environmental standards will have an abundance of polluting factors. As a result, liberalizing commerce between developed and developing countries while the developed country has stronger restrictions may increase polluting economic activity in the poorly regulated developing country (Gallagher, 2009). This supports the pollution hypothesis, which refers to the movement of polluting activities to countries with weak environmental laws and explains how polluting industries move from developed to developing countries. Similarly, the factor endowment hypothesis claims that when environmental regulations are not strict enough, natural resource-rich countries will specialize through globalization in the production and export of goods for which they can make intensive use of their natural resources, usually using environmentally damaging production techniques (Bilgili & Ulucak, 2020).

The other indirect effect of globalization on the environment is the technical effects (Copeland, 2009). The technological effect refers to changes in production techniques as a result of international trade (Cole, 2004). In other words, as a consequence of globalization, countries will be able to obtain power technology from international markets, enabling them to improve their production methods to use energy more efficiently and minimize carbon dioxide emissions levels (Bilgili & Ulucak, 2020). Economic liberalization, according to the technical effect, could decrease environmental degradation by enabling the transfer of technology and new eco-friendly production techniques (Karasoy, 2021; Kucher et al., 2019).

Globalization is a process by which individuals, companies, and governments interact and integrate. This process is driven by international trade and investment and is supported by information technology (Herrmann & Hauschild, 2009). Globalization is expected to lead to increased global production (scale effect), increased technological development (technological effect), and changes in the composition and location of production and consumption activities (structural effect), as well as the ability to produce and consume different product combinations (product effect) (Apaydin, 2020). On the other hand, it should be emphasized that free international commerce and foreign direct investment (FDI) caused by globalization will expand economic activity, technology transfer, and energy use, each of which will affect the environment (Abid et al., 2021). According to the Ecological Footprint Atlas, human demands have exceeded Earth's biological capacity since the 1970s, resulting in an ecological overshoot. Human demands are the ecological assets required by a particular population to generate the natural resources it consumes, whereas biocapacity is the productivity of these ecological assets. Human demands affect ecosystems by creating ecological pressures such as land use changes, resource extraction and depletion (such as deforestation and overfishing), waste emissions and pollution, and organism modification and movement. Climate change, land degradation, species extinction, and pollution are some of the environmental pollutions (Rudolf & Figge, 2017). Climate change harms the terrestrial ecosystem, food availability, land quality, and human life. The main impact of climate change is greater carbon emissions in the atmosphere. These emissions are generated by the use of conventional energy sources (fossil fuels), which represent about 80 % of total energy. Furthermore, excessive resource use increases environmental stress and the ecological footprint (EF) globally (Abid et al., 2021). For example, while the biologically productive area (ecological footprint) needed to carry out all economic activities worldwide in 1961 was 7.05 billion hectares (kha), the bio-capacity reflecting the area required to create these resources in total was 9.6 billion kha. In other words, there is no ecological deficit and the world's ecological reserves are sufficient. However, this situation has started to change since 1980, which is widely regarded as the start of the globalization movement. As of 1980, the total ecological footprint was 12.2 billion kha, whereas the total biocapacity was 10.3 billion kha. When examined for 2016, the ecological footprint is 20.5 billion kha compared to the biocapacity of 12.1 billion kha, indicating that the ecological deficit has reached significant proportions (Apaydin, 2020).

Economic globalization (EG) can affect the EF negatively or positively. If EG rises as a result of increased business globalization and the elimination of trade barriers like tariffs, so will commercial activity and the economy. Consequently, the exchange of goods and services accelerates and increases production and consumption in all countries. Therefore, activities such as industrial production, foreign direct investments, and transportation are increased (Ahmed et al., 2021b). Although more foreign direct investment benefits industrialized nations in terms of environmental quality, it harms developing countries.

Developed countries move harmful industrial output to developing countries, increasing environmental pollution in developing countries. At the same time, as economic activity and production levels increase, so does environmental pollution as the amount of energy consumed increases (Yilanci & Gorus, 2020). However, when commercial activities grow because of EG, production may shift away from industrial economies, where more energy is required as an input, toward eco-friendly and service-based economies. As a result, these changes in economic structure may have a lower impact on environmental pollution. EG also encourages technical advancement (Abid et al., 2021). Technological progress, on the other hand, prevents environmental destruction caused by natural resource depletion by enabling more output with less resource use.

Based on the results of literature research, there are three conclusions on the relationship between EG and EF (Table 1).

Table 1