Testing the Short, Medium, and Long-Term Effects of Shocks on Ecological Balance

Abstract

Ecological balance is an indicator of environmental degradation, which is computed as the difference between biocapacity and ecological footprint. In this study, we examine whether the effect of shocks on the ecological balance is permanent or temporary in the EU-15 countries, considering the period from 1961 to 2018. The application of unit root tests, with and without a Fourier function, indicates that the effects of shocks are temporary in only four countries. To reveal the persistence of shocks at different frequencies, that is, the short-, medium-, and long-run, we decomposed the ecological balance series by using the Discrete Wavelet Transform method. The unit root test results show that the effects of shocks are temporary in all countries in the short-run. However, the results also show that the shocks are temporary in nine countries in the medium-run and ten countries in the long-run. Thus, the implemented policies to balance ecology are not effective in the short-run but are effective in only six countries in the medium-term and in only five countries in the long-term. These findings demonstrate the importance of considering different frequencies when testing the effectiveness of empirically implemented policies. Regarding policy implications, this study suggests focusing on medium- and long-term environmental policies rather than short-term ones.