The impact of environmental policy on economic growth

Abstract

This study seeks to understand the relationship between environmental policy and economic growth in EU Member States, together with jurisdictions forming part of the OECOD. To this end, the methodology captures the environmental policy stringency index and regresses it on RealGDP per capita. Furthermore, this research uses panel data and does a regression analysis with fixed effects. Three models are run, with the main variables being GDP and EPS. However, control variables and dummy variables have been added to the model to help explain the relationship between EPS and GDP. The main model is run as an ordinary least squares method only, with fixed effects and year fixed effects as well to understand the difference between them. All models show that stringent environmental policy negatively impacts economic growth. This means that more investment is needed to achieve sustainable economic growth. This dissertation’s findings help policy makers when creating environmental policies and prompt further research and understanding on sustainability.