Investigating the Relationship Between Export Diversification and River Water Pollution: A Time Series Analysis of the Indian Experience

Abstract

This article attempts to test the environmental Kuznets curve (EKC) for export diversification and river water pollution (proxied by biochemical oxygen demand) for India during the period from 1986 to 2019. Over the past decade, India’s merchandise exports have been dominated by pollution-intensive industries such as mineral fuels, pharmaceuticals, nuclear reactors, organic chemicals and electrical machinery, iron and steel, and textiles. Additionally, India’s export mix is weakly diversified or a small number of commodities form the merchandise export basket. River water pollution is one of the gravest ecological threats in this country. Although a host of reasons define this ecological devastation, this study attempts to investigate if the weakly diversified, pollution-intensive export basket has any link with biochemical oxygen demand. Dickey–Fuller (ADF) and Philip–Perron (PP) tests are employed to determine the stationary properties of the variables and the autoregressive distributed lag (ARDL) cointegration test, as well as the bounds test to check the short- and long-run cointegration. Findings suggest that (a) export diversification is strongly cointegrated with biochemical oxygen demand both in the short and in the long run, and (b) the conventional inverted U-shaped EKC was not validated. Furthermore, a weakly diversified export basket increases water pollution. Suggested policy initiatives to combat industrial water pollution include the introduction of economic instruments. The water pollution abatement experience of industrial clusters suggests that radical institutional and governance reforms are paramount for successful policy reforms. Finally, there is a need to reduce the export commodity basket concentration not just to insulate the economy against global dynamics but also for achieving the goal of sustainable development. JEL codes: F18, Q56, Q53. Q580