The empirical relationship between environmental degradation, economic growth, and social well-being in Belt and Road Initiative countries

This study used principal component analysis (PCA) to develop composite indexes for economic growth, environmental degradation, and social well-being. The mutual relationship between these indexes was empirically tested using a panel vector autoregressive model based on a generalized method of moment approach (PVAR-GMM), and robustness was determined with Driscoll and Kraay regression. To this end, we gathered the data for 36 Belt and Road Initiative (BRI) countries over the period 1995-2016. Using a multivariate framework, the empirical results showed that environmental degradation and social well-being have a significant positive impact on the economic growth index. The social well-being index and economic growth are contributors to environmental degradation. Similarly, economic growth, in the long run, improves social well-being. The results confirm bidirectional causality between economic growth and environmental degradation. Another bidirectional causal relationship was found between economic growth and social well-being. Further, causality exists from social well-being to environmental degradation, but not vice versa. The analysis of the impulse response function exhibited the presence of the environmental Kuznets curve phenomenon in BRI countries. Moreover, the results of variance decomposition suggested that a shock in one index spills over to other indexes simultaneously. The study suggests that policymakers should consider social well-being and environmental degradation in economic activity to achieve sustainable development goals.