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Does Economic Growth Reduce Or Increase Pollution? An Examination Of Croatia’S Sector-Specific Environmental Kuznets Curve

Author

Listed:
  • Leonarda Srdelic

    (Institute of Public Finance, Zagreb)

  • Radoslav Barisic

    (University of Zagreb, Faculty of Economics and Business)

Abstract
This paper investigates the existence of sector-specific Environmental Kuznets Curves (EKC) in Croatia from 1995 to 2021. Using Autoregressive Distributed Lag (ARDL) and Error Correction Models (ECM), the relationship between greenhouse gas (GHG) emissions and Gross Domestic Product (GDP) is analysed across key climate-policy relevant sectors (CPRS). A stable long-term relationship with significant short-term adjustments was found in the energy-intensive sector, which is regulated under the European Union Emissions Trading System (EU ETS). Long-term cointegration, but with non-significant short-term adjustments, was observed in the buildings, transportation, and utility/electricity sectors. Among sectors with a significant long-term relationship, an inverted U-shaped Environmental Kuznets Curve (EKC) – where emissions initially rise and then, after reaching a certain GDP threshold, decline – was identified in the buildings and energy-intensive sectors. In contrast, a U-shaped relationship was found in the utility/electricity sector, where emissions initially decrease but start to increase again as GDP grows. The transportation sector shows a positive linear relationship with GDP, with emissions rising consistently with economic growth, highlighting the need for targeted interventions like carbon pricing. Conversely, the fossil fuel sector shows no significant GDP-emissions relationship, pointing to external factors like geopolitical risks as primary influences.

Suggested Citation

  • Leonarda Srdelic & Radoslav Barisic, 2025. "Does Economic Growth Reduce Or Increase Pollution? An Examination Of Croatia’S Sector-Specific Environmental Kuznets Curve," Economic Thought and Practice, Department of Economics and Business, University of Dubrovnik, vol. 34(1), pages 85-105, june.
    • Handle: RePEc:avo:emipdu:v:34:y:2025:i:1:p:85-105
    DOI: 10.17818/EMIP/2025/9
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    More about this item

    Keywords

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    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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