Economic Research and Perspectives

Economic Research and Perspectives

Economic Globalization and Environmental Well-being in Developed and Developing Countries A Smooth Transition Panel Regression Approach

Authors
Anise Amini 1
Saman Ghaderi 2
1 Bachelor's degree M.Sc. Student in Economics, Department of Economics, Faculty of Humanities and Social Sciences, University of Kurdistan, , Sanandaj, Iran
2 Associate Professor, Department of Economics, Faculty of Humanities and Social Sciences, University of Kurdistan, Sanandaj, Iran
10.48311/ecor.2025.13656
Abstract
Economic globalization, while offering significant economic benefits, has raised growing concerns about its environmental impacts. Environmental well-being, as a fundamental dimension of sustainable development, plays a crucial role in societal stability and informs environmental policymaking. This study investigates the effect of economic globalization on environmental well-being in 133 developed and developing countries over 2000–2020 using the Panel Smooth Transition Regression (PSTR) model. Results indicate a nonlinear relationship between economic globalization and environmental well-being in both groups. A two-regime model with specific threshold values was selected as optimal. The slope coefficients were estimated at 1.28 for developed and 159.78 for developing countries, indicating a slower transition between regimes in developed nations.

In developed countries, economic globalization negatively impacts environmental well-being in the first regime but exerts a positive and significant effect in the second regime. This suggests that at lower globalization levels, environmental degradation and resource overuse increase, while beyond a threshold, international cooperation, stricter standards, and green technologies improve outcomes. In developing countries, economic globalization negatively and significantly affects environmental well-being across both regimes, likely due to industrial pressures, resource exploitation, and limited technical, financial, and regulatory capacity.

The findings highlight the necessity of tailored policy interventions. Developing countries should focus on technological advancement, regulatory strengthening, and sustainable industrial policies to mitigate negative effects. Developed countries should continue enhancing green innovation and international cooperation to sustain positive environmental impacts. These results emphasize the complex, context-dependent relationship between economic globalization and environmental well-being.

Aim and Introduction

Economic globalization has many economic benefits, but it has also been accompanied by environmental challenges that have increased concern about the impact of these trends on the environment. Environmental welfare plays a key role in the organization of societies and drawing attention to environmental issues as one of the main dimensions of sustainability. This is also true for the development structures and decisions related to the environment. The purpose of the present study is to investigate the impact of economic globalization on environmental well-being in developed and developing countries during the years 2000 to 2020 using soft panel regression. The results show the existence of a non-linear relationship between the research variables. For developed and developing countries, a transfer function and two threshold limits, representing a two-regime model, were also chosen as the optimal model. The slope factor for developed and developing countries was equal to 1.28 and 159.78 respectively. The results of the model estimation indicate that in developed countries, the variable of economic globalization has a negative effect on environmental welfare in the first extreme regime and a positive and significant effect in the second extreme regime. In developing countries, the variable of economic globalization has also a negative and significant effect on environmental well-being in both regimes. On the other hand, in developed countries, for the first limit regime, economic globalization may lead to an increase in unsustainable use of resources and environmental pollution. But in the second extreme regime, it can promote the improvement of international cooperation in the field of environmental protection and the development of clean and green technologies. In developing countries, increased economic globalization may lead to increased industrial pressures and inappropriate use of natural resources, which causes damages to the environment and rampant pollution. Due to technical, financial, and regulatory constraints, these countries may not be able to take advantage of the benefits of globalization in a positive way for the environment and thus have a negative impact on environmental well-being. According to the research results, with the development of technology and industrial control, along with sustainable policies, it is possible to ensure the improvement of environmental well-being and strengthen the positive effect of economic globalization on environmental well-being.

Methodology

This study examines the impact of globalization on environmental well-being in developed and developing countries (133 countries) for the period 2000-2020 using the panel smooth transition regression (PSTR) model. Statistical tables, global databases, data from the Swiss Economic Institute KOF, and the Social Science Institute (SSI) - TH Köln website were used to collect statistics and quantitative information. The environmental welfare variable in this research as a dependent variable is the geometric mean of seven indicators of biodiversity, renewable water resources, energy consumption, energy efficiency, energy reserves, greenhouse gases and renewable energy. Economic globalization is considered as a transition variable, and to better explain the issues of GDP per capita growth (percentage per annum), general government final consumption expenditure (percentage of GDP), foreign direct investment, net inflows (percentage of GDP) and population growth (percentage per annum) were selected as influential factors. PSTR as a statistical model is usually used to analyze non-linear relationships between economic variables, especially to investigate non-linear patterns or changes in the behavior of variables over time. This flexible model can depict complex relationships between different variables and is known as a popular choice in various fields such as economics, finance and social science. The model is an extension of the smooth transition regression (STR) that allows the determination of the transition function between two different regimes. With PSTR, the transfer function is extended for panel data, which allows the analysis of nonlinear relationships between variables in multiple units, such as countries or firms, over time. PSTR is a powerful tool for analyzing the impact of various economic factors on different regions or countries and can be used to examine the impact of a specific economic policy or event on different regions. PSTR can also be used for different types of data such as cross-sectional, time series and panel data, which makes it a versatile tool for analyzing various economic phenomena.

Findings

The research shows the estimated results of the model upon which the slope parameter, which expresses the speed of adjustment from one regime to another, is equal to 1.28 and 159.78 for developed and developing countries, respectively, i.e, the transition from linear regime to non-linear regime in developed countries is done at a much lower speed than in developing countries. The estimation of the model shows the nonlinear relationship in two threshold points for developed countries c_1=79.5617 and c_2=85.0326 and c = (79.56+85.03)/2 = 82.29 also for developing countries c_1= 50.6518 and c_2 = 62.4416 and c = (50.65+62.44) /2 = 56.54 and the transfer function is in two regimes. If the economic globalization exceeds 82.29 in developed countries and 56.54 in developing countries, the behavior of the variables will be according to the second regime, and if it is less than the above threshold, they will be in the first regime.

In developed countries, the coefficients are such that the variable of economic globalization has a negative and significant effect on environmental welfare in the first limit regime and a positive and significant effect in the second limit regime. GDP per capita growth has a positive and non-significant effect on environmental well-being in the first limit regime and a significant negative effect in the second limit regime. Government size and population growth have also a positive effect in the first limit regime and a negative and significant effect in the second limit regime. Foreign direct investment in both regimes has a negative and insignificant effect on environmental well-being.

In developing countries, the coefficients are such that the variable of economic globalization, the growth of GDP per capita in both marginal regimes has a negative and significant effect, as well as the size of the government and population growth in both marginal regimes have a negative and insignificant effect on the dependent variable (welfare). Foreign direct investment has also a positive and insignificant effect in the first limit regime and a negative and significant effect in the second limit regime on environmental well-being.

Discussion and Conclusion

The results of the research show that the impact of various factors on environmental well-being in developed and developing countries is different from each other. These differences may be due to different economic, social, and cultural conditions in these countries.

In developed countries in the first limit regime, economic globalization leads to an increase in economic pressures and international competition, which can cause more use of natural resources, increase the production of pollutants, and decrease the quality of the environment. Moreover, in the second extreme regime, the Economic globalization variable has a positive and significant effect on environmental well-being. This may be due to increased access to advanced technologies, higher environmental standards, and increased international cooperation in environmental protection.

In developing countries, economic globalization variables have a negative effect on environmental well-being in both regimes. In other words, the increase of these variables in both limit regimes leads to a decrease in the quality of the environment and environmental well-being. In other words, economic globalization leads to an increase in the per capita production and consumption of energy and natural resources, which can lead to air and water pollution, a decrease in biodiversity, and a reduction in air and water quality.

In general, it can be concluded that in developed countries, increasing economic growth, government size, and population growth lead to improved environmental conditions, but in developing countries, these factors usually cause a decrease in environmental quality and environmental well-being. For the optimal management of environmental welfare in any country, it is necessary to pay attention to the economic, social and cultural conditions of that country. It is also vitally important to formulate appropriate policies and strategies to deal with environmental challenges

Keywords
Environmental Well-being
Economic globalization
Smooth Transition Panel Regression (PSTR)

Subjects

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