Is the EKC hypothesis valid in the five highly globalized countries of the European Union? An empirical investigation with smooth structural shifts

Abstract

This study analyzes the impact of globalization and income on ecological footprint over the period of 1970 to 2018 in the five highly globalized countries of the European Union ranked by the KOF index. To this end, the study uses a Fourier autoregressive distributed lag cointegration and Fourier Toda-Yamamoto causality methods. Studies that examine the effects of globalization on environmental degradation often neglect structural changes, which can lead to biased results. Using Fourier approximations, this study is the first to conduct an environmental assessment incorporating smooth structural changes for the five highly globalized countries of the European Union. The results show that (i) cointegration exists in Switzerland, Sweden, the Netherlands, Austria, and Denmark. (ii) The EKC hypothesis is valid for Switzerland and Denmark, while in Sweden and Austria, there is a U-shaped relationship between income and ecological footprint. (iii) The turning point at which income improves environmental quality is $68,191 for Switzerland and $46,600 for Denmark, and both countries have exceeded this per capita income level. (iv) Globalization is a factor that promotes environmental sustainability in Switzerland and the Netherlands. In order to regulate and manage environmental issues effectively, policy-makers should take advantage of economic development in Switzerland and Denmark as well as globalization in the Netherlands and Switzerland.