Impact of Determinant Macro Economic Variables on Environmental Changes in Iran

Abstract

Sustainable economic development involves both improving the socio-economic quality of life in the present and improving environmental conditions for future generations. The main objective of the study was to investigate the impact of the determinant macroeconomic variables, including economic complexity, construction, energy consumption, and housing sector expenditures, on environmental changes in Iran over the period 1991 to 2019; using the autoregressive distributed lag (ARDL) model. The results show that at the macro level, an increase in the economic complexity index can reduce pollution in both the short and long term. The effects of further expansion of the housing sector and household energy consumption on pollution are positive and significant in both the short and long run. The error correction model (ECM = 0.65) shows that 65% of the imbalances in each period are corrected in the next period. Based on the obtained results, it is recommended to take serious measures to improve the structure of production and increase the country’s economic complexity index; in other words, to produce goods with higher knowledge and technology and apply policies to improve the level of household energy consumption leading to air pollution reduction. Jel: Q40, Q48, Q50, Q52