The Effects of Economic Growth on Environment: An Application of Environmental Kuznets Curve in United Arab Emirates

The correlation between economic growth and environmental degradation is becoming important as a result of the concerns for environment and sustainable development. The correlation has been empirically modeled through CO2 emissions and per capita income relationship by many researchers. The results of such researches have been formulated by environmental Kuznets curve (EKC) hypothesis. According to EKC hypothesis there is an inverted Ushape relationship between environmental degradation and income per capita so that, eventually, growth reduces the environmental impact of economic activity. Having such trend in a country is thought to be one of the most important indicators of sustainable economic development. The main objective of this study is to analyze the effect of economic growth on environment by applying EKC approach to UAE economy. The long-run EKC relationship for CO2 emission and UAE’s per capita income over the 1970- 2010 period was analyzed. An autoregressive distributed lag (ARDL) model was used to determine the effects of per capita income, openness ratio of UAE economy, and human development index (HDI) on CO2 emission. According to the results there was a inverted-U shape relationship between CO2 emission and per capita income of UAE. In addition to that even though there were expected significant negative effects of energy consumption, opening ratio and HDI on CO2 emission, their effects were not statistically significant. According to results of the analysis one can conclude that the economic growth in UAE is leading a decent environment, which is supporting the EKC hypothesis