Role of knowledge economy in managing demand-based environmental Kuznets Curve

Abstract

Aggregate demand or supply at equilibrium is commonly used as a representative of the macroeconomic activity of an economy whereby aggregate demand denotes the behaviour of individuals and households. However, aggregate demand can also directly affect environmental deterioration via changes in aggregate production. This study tried to explore this relationship, known as the demand-based Environmental Kuznets Curve (Demand EKC) and the role of different knowledge economy indicators. Knowledge economy indicators are proposed to influence consumption patterns, altering the demand EKC that empirical studies have understudied. For this purpose, secondary data for 147 countries were collected from 2008 to 2018, also classified as development-wise. This study found that aggregate demand significantly affects carbon emissions. The long-run results are estimated using the Fully Modified Ordinary Least Square method. Controlling factors like renewable energy consumption, population density, and financial development significantly affect carbon emissions in sample countries. This study has incorporated four pillars of a knowledge-based economy and the results showed that these indicators helped reduce consumption-related CO₂ emissions.