Environmental and socio-economic sustainability in India: evidence from CO2 emission and economic inequality relationship

This study demonstrates the evolution of the relationship between anthropogenic CO2 emission from fossil fuels use and inequality in consumption expenditure in India based on state-level panel data for the period 1981-2008. Controlling for the scale and composition of economic activities and population, the estimated elasticity of CO2 emission with respect to economic inequality is found to be equivalent to zero for the overall 28 years period. However, classifying the time frame into pre and post economic liberalization periods (1981-1991 and 1992-2008), reveals that the emission-inequality relationship was insignificant or negative in the pre-liberalization period but turned unambiguously positive and significant in the post-liberalization period. Further classification of the post-liberalization period shows that the positive emission-inequality relationship was statistically insignificant during 1992-1999 and it gained significant strength during 2000-2008. Substantively higher increase in the upper economic strata's propensity to emit CO2 made feasible by enhanced access to global markets is discussed as a plausible reason for the positive emission-inequality relationship in the post-liberalization period. The reduced form analysis of the emission-inequality relationship provides a vital policy insight that India has a potential opportunity to harness this synergistic relationship and jointly mitigate the environmental and socio-economic sustainability challenges.