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International Journal of

Environmental Research
and Public Health

Article
Impact of Urbanization and Economic Growth on CO2
Emission: A Case of Far East Asian Countries
Asim Anwar 1, *, Mustafa Younis 2 and Inayat Ullah 1
1 Department of Management Sciences, COMSATS University Islamabad, Attock Campus,
Attock 43600, Pakistan; [email protected]
2 Department of Health Policy & Management, Jackson State University, Jackson, MS 39217, USA;
[email protected]
* Correspondence: [email protected]

Received: 25 February 2020; Accepted: 2 April 2020; Published: 7 April 2020 

Abstract: Rising CO2 emission constitute a great threat to the world environment and public
health. This study examines the major determinants of CO2 emissions in Far East countries in the
period of 1980 to 2017. We adopt a panel data-fixed effect model that accounts for time-invariant
country-specific characteristics that may create omitted-variable bias. We also additionally take care
of the time trend by applying an annual fixed effect into our model. The study finds that urbanization,
economic growth and trade openness significantly determine CO2 emission in the selected countries.
Thus, the main policy suggestions are (a) to encourage green and sustainable urbanization, as it
helps in economic progress but not at the expense of environmental deterioration; (b) to strategically
regulate and improve industrial structure; and (c) enhance sharing of renewable energy in total
energy consumption.

Keywords: CO2 emission; economic growth; urbanization; fixed effect model; Far East countries

1. Introduction
Global warming is a major threat to the world environment and public health [1,2]. The massive
industrial revolution in recent years ran by huge consumption of fossil fuels and consequent
quick increase in emissions of carbon dioxide (CO2 ) has led to austere global warming [3–5].
The Intergovernmental Panel on Climate Change (IPCC) reported an increase of average surface
temperature by 0.6 ◦ C in the twentieth century ascribed to greenhouse gases [2]. The prevailing global
warming and the subsequent climate change pose potential diverse physical, ecological and health
threats reciprocated by extreme weather conditions and consequent events like floods, storms, droughts
and the heat waves that is accompanied by other fatal conditions like rise in sea level, altered growth
of the crops and affected water systems [2,6]. The CO2 emission is considered to be a major factor of
greenhouse effect and thus apprehend immense attention in recent past among the academics [1].
The IPCC (2014) reveals that CO2 emission from industrial processes and fossil fuel combustion
shared 78% increase in overall Greenhouse gas emission from 1970 to 2010. The CO2 emission since
seventies has more than doubled and increased by 40% since 2000. Despite of having stability during
2013 to 2016, the CO2 emission have increased by 1.5% in 2017 and continue to increase led by China,
India and EU [7]. The lack of policy measures, the emission trends are expected to increase profoundly
due to increased global energy demand and fossil fuels being the main drivers of greenhouse gas
emissions which will ultimately have negative effects on public health [7].
The empirical literature spanning from last two decades has underscored deep rooted correlation
between economic growth and subsequent massive energy usage [8,9]. Energy utilization has been
generally recognized as a major factor in relation to CO2 emission and in recent years, has been

Int. J. Environ. Res. Public Health 2020, 17, 2531; doi:10.3390/ijerph17072531 www.mdpi.com/journal/ijerph
Int. J. Environ. Res. Public Health 2020, 17, 2531 2 of 8

observed as a highly researched topic in different theoretical and empirical investigations. Using
STIRPAT model by [10], examined economic growth being an important contributor in promoting
carbon dioxide emissions in China. Similar outcomes were originated from the studies conducted
in Azerbaijan, Australia and China [11–13]. The co-integration technique was adopted to analyze
the long run association amid economic development and CO2 emission for advanced and less
developed nations [14–16]. The results indicate output growth, energy consumption and carbon
emissions are cross-sectionally dependent and co-integrated. While some researchers explored the
causal linkage among economic development, energy consumption and CO2 emission applying granger
causality technique on both time series and panel dataset are having inconsistent results. A study
for India found unidirectional causality from energy consumption to economic growth [17]. While,
a study for BRIC countires examined bidirectional causality amid CO2 emission and energy usage and
bidirectional causality amid energy usage and output growth while unidirectional causalities amid
CO2 emissions-output growth and energy use and economic development [18]. The studies [1,19,20]
did not locate any causality amid CO2 emissions and output growth. The researchers have tried to
extend the analysis by incorporating trade openness or trade intensity in addition to income/output
and financial development [21]. A study using data for newly industrialized countries (NIC) included
trade openness into the framework of CO2 emissions [22]. The study discovered that trade openness is
an important determinant of CO2 emissions in NIC. Another study has also evaluated the significance
of trade in measuring the level of CO2 emission in NIC countries and concluded that trade openness is
a critical factor causing emissions [1].
Countries in Far East Asia such as Japan, China, South Korea, Malaysia, Singapore, Thailand and
Hong Kong have achieved rapid economic growth in last few decades due to division of labor and
development of non-agricultural sectors has resulted into an increased urbanization. These countries
are among the largest economies of the world with majority of their population lives in urban areas
(i.e., 91%, 57.96%, 81.50%, 75.44%, 100%, 49.2% and 100% respectively). These economies with high
level of growth and urbanization have contributed enormously to CO2 emissions in recent times.
Japan, China and South Korea were responsible for 12 percent of the total CO2 emissions in 1980 and
18 percent in 2013. Despite having high level of economic growth, urbanization and CO2 emission,
limited cross country studies have examined the association among urbanization, economic growth
and CO2 emission in these Far East Asian countries. Therefore, this study aims to study the impact of
urbanization and economic development on CO2 emissions for the panel of Far East Asian countries.
Secondly, we adopt a panel data fixed effect model that accounts for the time-invariant country-specific
characteristics that may create omitted variable bias. We also additionally take care of the time trend
by applying year fixed effect into our model.
The organizational structure of the article is as follows: Section 2 discusses methodology and data
sources of this study; Section 3 offers outcomes and discussion while Section 4 follows with a summary
of the results and policy implications.

2. Methodology and Variables


Following extensive literature on economic development and energy consumption as the main
factors of CO2 emission in different parts of the world [10,23], we choose countries with higher carbon
emission in Far East Asia. These include China, Japan, South Korea, Malaysia, Singapore, Philippine,
Thailand, Hong Kong and Macau. We use the following basic logarithmic transformational model to
estimate the effect of covariates on the intensity of CO2 emission in the selected region based on the
model of [24].

ln(CO2)it = α + α1 ln(URBit ) + α2 ln(GDPit ) + α3 ln(TOit ) + γi + εit (1)

where the subscript i represents the country and t shows the time period in years. CO2 is the carbon
dioxide emission (kt), URB indicates the urbanization (% of total population), GDP specifies the gross
Int. J. Environ. Res. Public Health 2020, 17, 2531 3 of 8

domestic product (constant 2010 US$), while TO shows the trade openness. γi represent the individual
country-specific time invariant characteristics controlled through fixed effect model. The εit is the error
term clustered at country level. Data for all these variables was taken from the World Bank Tables.
While using cross-country data, we have number of reasons to use fixed effect model. First, we
assume that something within each country may impact or bias the predictor such as GDP, Urbanization
or carbon emission, the outcome variables. This potential effect is unobservable; however, we can
control for it using fixed effect model. This assumption leads to the possible correlation between
individual country’s error term and our explanatory variables. Earlier cross-country studies suggest the
use of cluster standard error which is a more conservative yet reliable way of reporting the significance
of the estimates. Secondly, we assume that those time-invariant characteristics are unique to the
country and may not be correlated with other country’s characteristics. Each country is different
and therefore individual country’s error term and the constant (which captures individual country
characteristics) may not be correlated with the others. To test this second assumption, we compare the
fixed effect estimates with random effect estimates obtained through Equation (2) as follows:

ln(CO2)it = α + α1 ln(URBit ) + α2 ln(GDPit ) + α3 ln(TOit ) + γi + uit + εit (2)

where uit and εit represent cross-country error and within-country error term respectively.
Using Equation (2), the main assumption is country-specific error term is not correlated with the
predictors which allows for time-invariant variables to play a role as explanatory variables. In this
case, we must specify those variables that may or may not influence the predictors’ variables. Given,
that cross-country datasets are always limited to specific variables, therefore, availability of data on all
such potential variables is always a limitation. We report the results of both random and fixed effect
model along with the differences in the coefficients. Using a long time series, there is always possibility
of existence of bias from unobservable factors that change overtime but are fixed to countries. To
account for this problem, we employ time fixed effect into our regression by creating year dummies
and testing their joint significance through Wald. We failed to reject the null hypothesis that coefficients
for all years are jointly equals zero and hence concluded to add year fixed effect into our regression.

3. Results and Discussion


The descriptive statistics of the related variables are shown in Table A1. The comparison table
reports the results of both the fixed and random effect models along with the difference in the coefficients.
The Hausman test shows in Table 1 to use fixed effect model. Our results of panel data fixed effect
model are shown in Table 2. In Table 2, column (1) simply tests the effect of urbanization on CO2
emission for nine Far East Asian countries without controlling for other covariates. The result shows
positive effect of urbanization on CO2 emission in these countries. Specifically, CO2 emission in studied
countries will increase by 2.7 percent with a 1 percent increase in urbanization. However, urbanization
is not the only determinant that explains CO2 emission. A number of studies [25,26] have used GDP as
an important determinant of CO2 emission. Hence, we control for GDP in column (2). The coefficient
for GDP was statistically significant highlighting economic growth through energy intensity as an
important factor in determining CO2 emission in the Far East Asian countries. The results in Table 2
verify that 1 percent increase in GDP will lead to increase CO2 emission by 0.4 percent in these countries.
After controlling GDP, the urbanization effect was still significant at 10% significance level. In addition,
in view of the previous studies that suggest trade openness as an important factor contributing into
industrial expansion and hence CO2 emission, we control for the effect of trade openness in column
(3). The results suggest the positive and significant effect of trade openness on CO2 emission in the
Far East Asian countries. Lastly, as explained in Section 2, we worry about the potential time trend
for each country that may affect the covariates over time. Applying year fixed effect in column (4),
shows the significance of the responsiveness of carbon emission to urbanization despite controlling all
observable factors and country’s fixed effect. More precisely, increasing urbanization by one more
Int. J. Environ. Res. Public Health 2020, 17, 2531 4 of 8

percentage is likely to increase carbon emission by nearly 1.5. After controlling for all covariates and
country and time year fixed effects, our model captures 85.3% (R2 ) percent variations in the outcome
variable that indicates the fitness of the model.

Table 1. Comparison of fixed and random effect models.

(1) (2) (3)


Difference
Dep. Var: Log of CO2 Emission Fixed Effect Model Random Effect Model
(Fixed−Random)
Log of Urbanization 1.230 *** 0.617 *** 0.613 ***
(0.161) (0.191) (0.0789)
Log of GDP 0.250 *** 0.573 *** −0.323 ***
(0.0530) (0.0552) (0.039)
Log of Trade Openness 0.176 *** −0.0239 0.199 ***
(0.0598) (0.0681) (0.035)
Constant −0.441 −6.029 ***
(1.261) (1.383)
Observations (N) 313 313 313
R−squared 0.803
Hausman Test (Prob > chi2) 0.0000
Number of country1 9 9 9
Robust standard errors in parentheses *** p < 0.01, * p < 0.1.

Table 2. Main determinants of carbon emission (CO2 ) in Far-East Asian countries (fixed effect model).

Dep. Var: CO2 Emission (1) (2) (3) (4)


Log of Urbanization 2.718 *** 1.370 * 1.149 * 1.426 **
(0.539) (0.622) (0.605) (0.596)
Log of GDP 0.410 ** 0.237 ** 0.0222
(0.123) (0.0959) (0.244)
Log of Trade Openness 0.303 * 0.122
(0.139) (0.212)
Country FE YES YES YES YES
Year FE (Time Trend) NO NO NO YES
Constant 0.280 −4.821 0.751 3.717
(2.237) (2.714) (3.373) (5.275)
Observations 315 313 313 313
R-squared 0.656 0.775 0.800 0.853
Number of country1 9 9 9 9
Note: Table 2 shows the panel fixed effect estimates of the CO2 emission in nine Far East Asian countries using
a balanced panel data from 1980 to 2017. Standard errors are clustered at country level shown in parenthesis.
Dependent variable is the carbon dioxide emission measured in metric tons. *** p < 0.01, ** p < 0.05, * p < 0.1.

Our results concerning urbanization are in line with other studies. For instance, [13] has termed
urbanization as positive contributor to CO2 emission in China. Likewise, a study for Pakistan found a
positive effect of urbanization on CO2 emission using ARDL and VECM models [27]. Urbanization
contributes to sustainable economic growth by increasing productivity and innovation [28]. The reports
suggest that 50% of the global population lives in metropolises and is increasing daily, while 80% of the
worldwide GDP produced in metropolises. However, the increased urbanization brings challenges as
they consume two-thirds of the total energy and contribute 70% of total greenhouse gas emissions [28].
The modern ecological and environmental theories, researchers highlighted the presence of inverted
U-shaped association amid pollution and urbanization, and therefore with increased urbanization,
the relationship may change from positive to negative. Urbanization in Far East Asian countries is
surging in the recent past, making the environment more polluted than other countries. Increased
urbanization in these countries shows an increase in economic output per capita in these economies.
These countries are paying higher attention to counter the negative effects of urbanization which
Int. J. Environ. Res. Public Health 2020, 17, 2531 5 of 8

they are achieving by lowering emissions and more usage of renewable energy. As the same time,
higher levels of urbanization has serious effects on CO2 emissions in these countries having serious
consequences for overall population health
Our results also indicate the positive and significant impact of economic growth on CO2 emission,
which corroborates with the previous studies [25,26]. Researchers have found significant associations
between GDP and CO2 emission in transitional economies [25]. Researchers have also found positive
effect of economic growth and CO2 emission in developed, emerging and middle & north African
countries [26]. The phenomenal economic growth in the studied countries in last few decades due
to industrial and manufacturing booms has increased the demand for energy consumption which
results in an increase in CO2 emissions [4,5,22]. These countries were responsible for almost 18% of
total global CO2 emissions in 2013 from petroleum consumption. The IPCC, in its report, highlighted
that fossil fuel combustion and cement manufacturing are responsible for 75% of human-caused
CO2 emissions. Industrialization increases income per capita, and the opportunities provided
with increases in income further enhances the demand for energy at individual—as well as at
the sector level—which result in an increases in CO2 emissions. The thrust for achieving higher
and sustainable economic growth using energy resources has outpaced the positive externalities
to negative in terms of environmental degradation in Far East Asian countries. China, Japan and
South Korea has introduced and implemented various schemes for tackling air pollution in East
Asia. These schemes include Long-Range transboundary Pollution of China, South Korea and Japan
(LTP), Acid Deposition Monitoring Network in East Asia (EANET) and North-East Asian Subregional
Program for Environmental Cooperation (NEASPEC). These schemes unfortunately underperformed
in creating an effective international regime in controlling transboundary air pollution in Far East Asian
region. The increase in CO2 emission has increased the number of deaths and other health related
problems like respiratory diseases, heart problems and stroke in these countries. Most of the Far East
countries have started programs to reduce carbon emissions through decrease in energy consumption
by increasing electrification and promoting capacity for clean oil, coal, nuclear and renewable energies.
The positive effect of trade on CO2 emission in Far East Asian countries suggests an increase
in the amount of trade will tend to increase the level of CO2 emission. The result of this study is in
line with [29] which shows a positive relationship between trade openness and CO2 emission in 105
high, middle- and low-income countries. Everything remaining constant, increase in trade will lead to
increased energy usage, which is an important factor in rising CO2 emission. Despite of having positive
externalities of trade it has some negative externalities in terms of environmental degradation [22].
The production of more exportable goods and transportation of exportable and importable is attributed
to more CO2 emission through combustion of more fossil fuels, oil spills and emission of Sulfur and
carbon [30]. This indicates that domestic and foreign investors in Far East countries do not utilize
environment friendly technologies in production processes which create health related issues for
the masses.

4. Conclusions
Over the last few decades, the Far East Asian countries have achieved remarkable economic
growth. However, along with such spectacular growth, East Asian countries face the challenge of
increasing CO2 emissions.
The present study examined the relationship among CO2 emissions (kt), economic growth (GDP),
urbanization (% of total population) and trade openness for a panel of nine Far East Asian countries
from 1980 to 2017, using a fixed effect approach.
Our estimates show that GDP, urbanization and trade openness were significantly correlated
with CO2 emission in the panel of Far East Asian countries. Far East Asian countries are growing at
a fast rate in terms of GDP, levels of urbanization and CO2 emissions, according to the World Bank
collection of development indicators. This fast track to increase in GDP, urbanization and trade has
caused environmental degradation, causing serious health issues in these countries.
Int. J. Environ. Res. Public Health 2020, 17, 2531 6 of 8

Policy Implications
Energy demand is expected to grow globally, but especially in East Asia, where China is the largest
energy consumer with 23 percent of the global consumption. The total primary energy consumption in
the studied countries has risen by 21 percent, while power consumption has increased by 43 percent
during 2005 to 2015. Considering the pace of economic growth and urbanization in Far East Asian
countries, the energy consumption will double by 2040, where conventional energy may still be used
to meet growing energy demand. Therefore, considering the growing demand for energy, the findings
of this study have important policy implications for Far East countries discussed below.
Far East countries should design more energy conservation policies to limit CO2 emission.
The studied countries need to promote and facilitate green and sustainable urbanization to improve
and sustain economic progress without any ecological mortification. Governments need to promote
renewable energy consumption in urban areas to strengthen the structure of energy usage so as to
enhance the effect of renewable energy on subsequent urbanization such as heating system, solar lighting
and ethane gasoline for vehicles. Any improvement in energy efficacy and promoting high-tech
innovation can help in reducing energy intensity. The lower energy usage will help in reducing CO2
emission in Far East countries which may help in improving the health standard in these countries.
Thus, these governments should further promote R&D to improve the non-renewable energy efficiency
and decrease renewable energy costs.
The chemical and heavy industries being the key contributors in CO2 emission play a vital role in
the Far East Asian countries industrial growth. Therefore, these countries need to deepen the reform
of these industries through administrative means and encouraging zero and light emission industry
through promoting industrial diversity. Furthermore, businesses and individuals should decrease
energy waster and encourage recycling to increase their environmentally friendly consciousness. Better
and timely policies designed to reduce CO2 emission will improve the health conditions of urban
population, as well as populations at large.

Author Contributions: Conceptualization, A.A.; methodology, A.A., M.Y. and I.U.; software, I.U. and A.A.;
validation, I.U., M.Y. and A.A.; formal analysis, I.U. and A.A.; investigation, A.A.; resources, A.A.; data curation,
A.A.; writing—original draft preparation, A.A. and M.Y.; writing—review and editing, A.A. and M.Y.; visualization,
A.A.; supervision, A.A.; project administration, A.A. All authors have read and agreed to the published version of
the manuscript.
Funding: The research did not receive any funding or grant from any source.
Conflicts of Interest: The authors declare no conflict of interest.

Appendix A
Table A1. Descriptive Statistics.

Count Mean Sd Min Max


CO2 Emission (Metric Tons) 315 701,051.8 1,642,323 484.044 1.03 × 107
GDP (constant at USD$) 340 1.08 × 1012 1.97 × 1012 4.13 × 109 1.02 × 1013
Urbanization (% of total
342 70.17376 26.51184 19.358 100
population)
Trade Openness 340 1.091394 1.120074 0.0695748 8.447878
Observations 342
Note: CO2 is the carbon dioxide emission measured in (kt), URB indicates the urbanization (% of total population),
GDP specifies the gross domestic product (constant 2010 US$), while TO shows trade openness.

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