Revisiting the EKC Hypothesis on the Moderating Role of Human Capital Formation in the Economic Growth-Environment Nexus

Abstract

This article investigates the moderation effect of human capital formation on the relationship between economic growth and selected significant indicators of environmental degradation. Panel data for 115 countries for the period 1990 – 2016 were collected from World Development Indicators (2018). The Human Development Index (HDI) is employed as a proxy for human capital formation in investigating the growth-environmental pollution nexus. The study employs structural equation modelling (SEM) hypothesis testing with multiple variables and complex causal relationships. Confirmatory factor analysis (CFA) is used to assess the reliability and validity analysis in the measurement model. Results reveal that HDI interaction with GDP degrades the quality of environment while its interaction effect with GDP2 mitigates varied selected emissions for upper-middle and high income countries, all of which show concurrence with the Environmental Kuznets Curve (EKC) hypothesis. Moreover, interaction effect of HDI reduces both CH4 and PM2.5 emissions in low income countries. Findings provide evidence of the Pollution Haven Hypothesis (PHH) that GDP and GDP2 growth emit a significant amount of CO2 in low- and lower-middle income countries, highlighting contradictory results with an HDI interaction. The results give rise to several policy implications, all of which point to a need for concerted efforts in implementing prudent economic development initiatives that mitigate environmental degradation. Also, the study pinpoints the need for a serious consideration of placing a global focus on the “education for sustainability” (EfS) principle in consumption and production activities and, accordingly, incorporating SD into national curricula to reap larger benefits of human capital formation in the growth-environment nexus.