The EKC hypothesis revisited: industrialization, trade, globalization and FDI effects on natural resource depletion in South Korea

Abstract

The aim of this study is to reveal the dynamics of environmental degradation by analyzing the effects of industrialization, foreign direct investment, trade and economic globalization on natural resource depletion in the South Korean economy during the period 1990–2022. Using per capita natural resource depletion as an indicator of environmental degradation, environmental problems are addressed from the perspective of environmental management and sustainability. Within this framework, the study aims to provide empirical evidence on how industrialization and openness processes can be reconciled with environmental management policies. In this study, the Fourier–Engle–Granger cointegration method was used to detect structural breaks. Long-term and short-term coefficients were obtained using FMOLS, CCR and DOLS estimators. This approach allows for the dynamic analysis of nonlinear relationships between indicators of industrialization and openness and natural resource depletion. Empirical findings indicate a U-shaped relationship between industrialization and natural resource depletion in the long term. This result indicates that the EKC hypothesis is invalid. Resource use decreases in the early stages of industrialization, while resource depletion accelerates as the process progresses. Increases in trade volume have been found to increase natural resource depletion in the long term. In the short term, while the U-shaped relationship with industrialization is not confirmed, the effect of trade on increasing resource depletion continues. This study offers a unique contribution to the environmental management literature by addressing environmental degradation through the lens of per capita natural resource depletion. Using a Fourier-based cointegration approach, the environmental impacts of industrialization and trade are analyzed, taking structural changes into account. The results indicate that environmental policies should be developed in conjunction with industrialization and international trade. The research findings have provided a number of policy implications on reducing the impact on the environment, notably through energy efficiency measures, application of renewable energy, environmental tax systems and utilization of the principles of the circular economy.