Revisiting the linkages between economic growth, human capital and environmental quality

The biggest factor leading to environmental degradation is the anthropogenic rise in greenhouse gas pollution. A vast majority of these anthropogenic emissions are because of the production of products with fossil-fuel-based energy. The issues of global warming and climate change continue to be widely discussed in modern scientific discourse, with a particular emphasis on the ecological impacts of human behavior. The antrhropogenic environmental pollution is a significant area of concern in this regard. Therefore, it has become very important and imperative to understand the relationship of deterioration of environment with the expansion of the economy and other factors that cause environmental degradation. The problem of reducing anthropogenic emissions has become more urgent than ever for policy makers to cope with environmental problems and thus ensure sustainable economic expansion. CO2 emissions constitute the largest share among greenhouse gas emissions. Therefore, governments have taken measures to decrease CO2 emissions. The fundamental goal of countries throughout the economic growth process is to boost output, which has led to environmental concerns reaching global proportions since the 1990s. The most prominent among these environmental problems are the unconscious consumption of natural resources, degradation of green areas, and global warming. Among these problems, the rapid and large-scale effects of global warming have brought global warming to the top of the list of problems to be solved. Greenhouse gas emissions originating from human-induced activities, which are important factors contributing to global warming, continue to increase every year (Fig. 1, 2). According to BP Statistics, between 1990 and 2019, global total CO2 emissions from energy and global per capita carbon emissions increased by 60% and 10%, respectively1.

Since the 1990s, the increase in CO2 emissions from anthropogenic activities in newly industrialized countries has been greater than in industrialized countries (Kasman, Duman, 2015). Among the newly industrialized countries, China is the most important and the largest country that uses fossil fuel-based production methods and emits a very high amount of CO2. China’s economy has undergone a significant period of growth during the past thirty years, which has led to excessive CO2 releases and consequent degradation of environment. In 2019, China, the world’s largest energy related CO2 emitter since 2006, emits a total of CO2 around, 9868.5 million tones. China’s total carbon emissions rosed from 10.8% of world in 1990 to 28.9% in 2019. BP Energy Statistics shows the annual growth rate of CO2 emissions in China as

Source: BP Statistical Review of World Energy (2022). Data on Carbon Dioxide Emissions from Energy. Available at: (accessed: December 28, 2022).

Figure 2. CO2 emissions per capita

Years

I China          OECD           World

Source: BP Statistical Review of World Energy (2022). Data on Carbon Dioxide Emissions from Energy. Available at: (accessed: December 28, 2022).

10.9 for the period from 1990 to 20192. As can be seen from the graph of total CO2 emissions, the gap between China and OECD members is narrowing between 1990 and 2019. For this period, (although slightly declining in recent years) OECD members’ total CO2 emissions stayed virtually flat, while total CO2 emissions in China nearly quadrupled.

Figure 2 shows how the gap in per capita CO2 emissions between China and the OECD countries continues to narrow. The per capita emissions of China exceed the mean of all other countries. Despite the decrease in average CO2 emissions per capita in OECD member countries, the 10% growth in global emissions per individual, which followed almost a flat course throughout this particular period, was influenced by the great increase in China. China officially joined the WTO in December 2001 (Teng, 2004). As shown in the figures, China’s membership to the WTO has increased the country’s production, through the implementation of development strategy that prioritizes exports and increases both the amount of total CO2 emissions and per capita emissions. The figures demonstrate China’s CO2 emissions have had a notable increasing trend since 2001.

The data presented in the figures depict the impact of the worldwide economic downturn on China, OECD member countries, and other regions across the globe. The 2008 global economic crisis severely affected the world economy and OECD members, but less so China. As of 2008, when the economic crisis was effective, CO2 emissions decreased in OECD countries, and remained stable in the world due to the decrease in production. China, however, did not experience such a reduction in emissions level of CO2 due to 2008 economic crisis.

It is important to apply nonconventional methods as well as conventional methods of combating environmental pollution. One of the nonconventional methods is human capital. Numerous studies show that raising the stock of human capital reduces carbon dioxide emissions. It is emphasized in the literature that investing in education is a channel to reduce CO2 emissions. It is suggested that highly educated individuals will pay attention to using products with low CO2 emissions. Regions with significant accumulation of human capital and thus technological capability have the potential to facilitate environmental amelioration because these regions can use sophisticated technologies (Lan et al., 2012). While higher-income consumers are spending more on green products, they are also demanding regulations to protect the environment (Dinda, 2004; Aytun, Akin, 2016). Highly educated and talented people are almost always more likely to earn more than others (Becker, 1994). People with increasing incomes care more about the environment, so regulators work more effectively and environmental degradation levels are reduced (Dinda, 2004). It has been demonstrated that the allocation of resources towards the development of human capital leads to a rise in labor productivity and serves as a catalyst for economic growth. There are very few examples of countries that have experienced a period of sustainable economic development without significant investments in the workforce. Most studies that attempt to quantitatively analyze the drivers of growth have identified that investment in human capital plays an important role (Becker, 1994). Research and development activities for environmental improvements increase with income (Komen et al., 1997). It is argued that skilled human capital is important for technological progress (Vandenbussche et al., 2006). With technological progress, old technologies that pollute the environment are replaced by new and cleaner technologies that contribute positively to environmental quality (Dinda, 2004).

Figure 3. Human Capital Index in selected countries

□ 1990   □ 2019

Source: Feenstra R.C., Inklaar R., Timmer M.P. (2015). The next generation of the Penn World Table. American Economic Review , 105(10), 3150–3182.

China’s human capital level is given in Figure 3 . As can be seen, China’s human capital level is not very high. It is seen that China lags behind many industrialized countries in the ranking of human capital. Although China has increased its human capital level more than 2 times from 1990 to 2019, this is not enough for China to catch up with industrialized countries.

The major aim of this research is to investigate the possible impact of investing in human capital as an unconventional method to address air pollution by decreasing CO2 emissions. The examination of the relationship between the human capital index, a comprehensive tool for assessing education, and environmental quality will provide significant suggestions for policymakers. Despite the fact that many research papers have investigated the correlation between a nation’s education level and its impact on environment, the academic literature lacks a consensus regarding the specific direction of human capital’s influence on the decline of the environmental conditions. Different results were obtained through the models developed by adding various control variables. We tried to contribute to the literature by adding energy intensity as a control variable. However, we did this by applying the Bayer – Hanck procedure.

The organization of subsequent sections of research is laid off in the following manner: First section contains a comprehensive review of literature pertaining the correlation between human capital and carbon dioxide emissions. After that, we will go on to a discussion of the data as well as the methodology. Subsequently, the main findings are presented and discussed. Finally, the article concludes with some recommendations on policy implications for China.