Globalization and its Effect on the Environment: A Case Study of Iran in the Presence of Structural Breaks

Abstract

The world economy is moving more and more towards globalization, and there has been significant growth in international trade, especially in the last two decades. Increasing economic integration in the world has led to the importance of environmental issues. The present study seeks to investigate the effects of globalization on the quality of the environment along with the variables of GDP, energy consumption and industrialization index considering the structural break in Iran between 1971 and 2017. The stationarity of the variables was investigated by Lee-Strazicich test and co-integration between variables with multiple breaks was measured using Maki test. It was found, using the FMOLS approach, that globalization, energy consumption, and industrialization have positive and significant effects on environmental pollution (CO2 emission). The relationship between GDP and the squared GDP with CO2 emissions is negative and positive, respectively, that is the environmental Kuznets curve (EKC) hypothesis is not confirmed in Iran and is U-shaped. Also, according to the results of the Toda-Yamamoto causality test, there is a one-way causality from energy consumption to CO2 emissions, globalization, and GDP. In addition, one-way causality was observed from GDP and industrialization to globalization, and from CO2 emissions to GDP.