HOW DOES ECONOMIC GROWTH AFFECTS DEFORESTATION: EVIDENCE FROM ALBANIA

Abstract: This paper examines the relationship between environment and economic development in Albania. We use macroeconomic data for the period 2000-2018 in order to give answer to the research question on the relationship between deforestation trends and economic growth. According to the literature, there is a “U” shaped relationship between GDP and environment. This is called the environmental Kuznets curve (EKC), and shows a hypothesized relationship between environmental quality and economic development. So, various indicators of environmental degradation tend to get worse as modern economic growth occurs until average income reaches a certain point over the course of development. The dependent variable is used deforestation as a proxy for environment degradation. Moreover, deforestation is analysed in relation with the following set of control variables; GDP growth rate, energy consumption, trade openness, and population during the period of study. Time series data obtained from the Albanian Institute of Statistics, Albanian Ministry of Environment and Tourism, and World Bank Development Indicators were fitted using econometric techniques such as Autoregressive Distributed Lag (ARDL), Granger causality test, Johansen co-integration test and Vector Error Correction Method (VECM). The empirical results of our analysis are in part consistent with similar studies focused on developing countries. The results confirmed the existence of co-integration among the variables both in long- and short-run paths.