Economic growth, international trade and air pollution: A decomposition analysis

This study analyzes the impact of economic growth and international trade on the level of air pollution. This is done by the estimation of the Structural Equation Model with two factors describing the structure of economic activity and air pollution intensity. It is further assumed that there is causal link between these two factors and that they are influenced by per capita income, international trade intensity and the Freedom House Index. The estimation results suggest that in the developing countries analyzed both international trade and per capita income lead to changes in the structure of economic activity and - as a consequence - to the increase in air pollution. In addition, the estimation results suggest that the impact of economic growth on air pollution intensity varies between the developing and developed countries. In the developing countries, this impact occurs through the change of the structure of economic activity, while in the developed countries, this impact is mainly direct and occurs through the sum of the scale effect and income effect. The positive sign of this impact suggests the dominance of the scale effect over the income effect. (C) 2008 Elsevier B.V. All rights reserved.