The Impact of Armey Curve on Kuznets Environmental Curve in Iran

Armey curve demonstrates a non-linear relationship between government size and economic growth. From the optimality point of view, the Armey curve recommends the development of government size which leads to increased production and economic growth when the size of the Government is small in an economy. In addition, the increase in Government size would lead to lower economic growth and production. Pollution is one of the most important challenges facing countries. Without doubt, pollution emission is a function of economic growth and development process. Most of the studies conducted in this area confirm an inverse U-shaped relationship between environmental quality and economic growth. The present study examines the effect of the Armey curve on Kuznets Environmental Curve in Iran during the period of 1978-2014 using ARDL approach. Results obtained indicate that energy consumption is the most influential variable in determining pollution and CO2 emission together with, government expenditure being an indicator of Armey curve, has negative impact on pollution process in Iran. In addition, the indicators of financial development have significant negative effect on environmental pollution so that by increasing each of them the pollution emission would be reduced. According to the results, we maintain that Iran is in the early stages of economic development, and still has not achieved to culmination of Kuznets curve. Finally, the hypothesis of Kuznets Environmental Curve in Iran is rejected in the long-term in all the senarios.