Economic Growth and Environmental Quality: Analysis of Government Expenditure and the Causal Effect
Abstract
:1. Introduction
2. Literature Review
2.1. Environmental Quality and Government Finance Expenditure
2.2. Economic Growth and Environmental Quality
2.3. Economic Growth and Government Finance Expenditure
3. Data and Variables
3.1. Preliminary Analysis
3.1.1. Trend of Variables
3.1.2. Cross-Sectional Dependency and Correlation Analysis
3.2. Model Estimation
4. Results and Discussion
4.1. PVAR Results
4.2. Variance Decomposition
4.3. Impulse Response Analysis (IRA)
4.4. Granger Causality Test
5. Conclusions
5.1. Policy Implication
5.2. Limitation of the Study
Author Contributions
Funding
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Conflicts of Interest
Abbreviation
EX | Environmental expenditures |
EG | Economic growth |
EQ | Environmental quality |
GEX | Government finance expenditure |
GDPpc | GDP per capita |
NASA | Northern Africa and Southern Africa republics |
PQR | Panel quantile regression |
PVAR | Panel vector autoregressive |
GMM | Generalized method of moment |
CO2 | Carbon dioxide emission |
FDI | Foreign direct investment |
FF | Fossil fuel |
WWII | World War II |
GHG | Greenhouse gases |
UNFCC | United Nations Framework Convention on Climate Change |
MENA | Middle East/North Africa |
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Var. | Indicators | Index (Code) | Source |
---|---|---|---|
Economic growth | GDPPC | The aggregate gross value added to the economy by all domestic manufacturers, plus any product tariffs, minus any subsidies not included in the product value. It is estimated without considering the depreciation of manufactured assets or natural resource depletion and deterioration. | WDI (2020) |
Government finance expenditure | GEX | Transfer payments, which include wage transfers (pension, social benefits) and capital transfers, along with expenditure, such as government expenditure and investment | WDI (2020) |
Environmental quality (EQ) | CO2 Fossil fuel | Pollutants are produced by the combustion of fossil fuels, the manufacture of cement, the use of solid, liquid, and gaseous fuels, and also gas flaring. | World Bank (2020) |
Foreign direct investment | FDI | Investing in commercial interests in a different country by people or companies in another country. In other terms, FDI is an investment by a foreign entity in the form of controlling ownership in a firm in another nation. Foreign direct investment (% of GDP) | World Bank (2020) |
North | South | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
GDPpc | GEX | CO2 | FF | FDI | GDPpc | GEX | CO2 | FF | FDI | |
Mean | 8.535 | 2.461 | 10.388 | 4.026 | 0.763 | 8.250 | 2.697 | 8.955 | 3.889 | 0.831 |
Median | 8.569 | 2.556 | 10.350 | 4.205 | 0.765 | 7.814 | 2.683 | 8.273 | 4.386 | 1.160 |
Maximum | 9.284 | 3.019 | 12.288 | 4.589 | 2.253 | 9.882 | 3.267 | 13.128 | 4.597 | 2.716 |
Minimum | 7.723 | −0.051 | 8.278 | 2.763 | −1.660 | 6.956 | 1.937 | 7.119 | 1.801 | −3.218 |
Std. Dev. | 0.517 | 0.539 | 1.222 | 0.575 | 0.784 | 0.954 | 0.308 | 1.770 | 0.862 | 1.127 |
Skewness | −0.074 | −2.359 | −0.078 | −0.880 | −0.472 | 0.273 | −0.264 | 1.578 | −1.042 | −1.038 |
Kurtosis | 1.569 | 9.950 | 1.731 | 2.452 | 3.942 | 1.394 | 2.506 | 4.146 | 2.432 | 3.765 |
Jarque–Bera | 8.794 | 299.962 | 6.952 | 14.451 | 7.569 | 14.25 | 2.595 | 55.927 | 23.151 | 24.286 |
Probability | 0.012 | 0.000 | 0.031 | 0.000 | 0.022 | 0.000 | 0.273 | 0.000 | 0.000 | 0.000 |
Sum Sq. Dev. | 26.969 | 29.403 | 150.982 | 33.404 | 62.167 | 107.470 | 11.248 | 369.7544 | 87.831 | 150.064 |
Observations | 102 | 102 | 102 | 102 | 102 | 119 | 119 | 119 | 119 | 119 |
Cross-Sectional Dependence Test | ||||||||||
North | South | |||||||||
Var. | CDP Test | p-Value | CDLMadj Test | p-Value | CDP-Test | p-Value | CDLMadj Test | p-Value | ||
GDPpc | 15.124 *** | 0.000 | 38.880 *** | 0.000 | 12.879 *** | 0.000 | 33.100 *** | 0.000 | ||
GEX | 3.035 *** | 0.002 | 5.775 *** | 0.000 | −1.760 ** | 0.078 | 8.780 *** | 0.000 | ||
CO2 | 10.710 *** | 0.000 | 21.917 *** | 0.000 | 15.927 *** | 0.000 | 36.129 *** | 0.000 | ||
FF | 2.603 *** | 0.001 | 4.361 *** | 0.000 | 5.637 *** | 0.000 | 7.823 *** | 0.000 | ||
FDI | 4.395 *** | 0.000 | 308.997 *** | 0.000 | 4.239 *** | 0.000 | 3.329 *** | 0.000 | ||
Correlation-North | Correlation-South | |||||||||
LNGDPpc | 1 | 1 | ||||||||
LNGEX | 0.305 | 1 | 0.586 | 1 | ||||||
LNCO2 | 0.693 | −0.244 | 1 | 0.435 | 0.366 | 1 | ||||
LNFF | 0.5724 | 0.708 | 0.084 | 1 | 0.307 | −0.107 | 0.033 | 1 | ||
LNFDI | 0.0146 | 0.021 | −0.147 | 0.067 | 1 | −0.095 | −0.056 | −0.345 | 0.175 | 1 |
North | South | |||||||
Pedroni | ||||||||
Statistic | Prob. | Statistic | Prob. | Statistic | Prob. | Statistic | Prob. | |
Panel v-statistic | −0.663 | 0.746 | 0.191 | 0.424 | −0.308 | 0.621 | −0.104 | 0.541 |
Panel rho-statistic | 0.677 | 0.751 | 0.732 | 0.768 | 0.502 | 0.692 | 1.164 | 0.877 |
Panel PP-statistic | −1.737 ** | 0.041 | −2.115 | 0.017 | −3.715 *** | 0.000 | −2.442 ** | 0.007 |
Panel ADF-statistic | −0.288 ** | 0.086 | −0.645 | 0.259 | −2.256 ** | 0.012 | −3.568 *** | 0.000 |
Alternative hypothesis: individual AR coefs. (between-dimension) | ||||||||
Statistic | Prob. | Statistic | Prob. | |||||
Group rho-statistic | 1.694 | 0.954 | 2.397 | 0.991 | ||||
Group PP-statistic | −5.363 ** | 0.000 | −2.010 | 0.022 | ||||
Group ADF-statistic | −0.683 ** | 0.047 | −4.104 *** | 0.000 | ||||
Kao | Kao | |||||||
ADF | t-Statistic | Prob. | ADF | t-Statistic | Prob. | |||
−1.561 * | 0.059 | −0.928 ** | 0.076 | |||||
Johansen | Johansen | |||||||
Hypothesized | Fisher Stat. * | Fisher Stat. * | Hypothesized | Fisher Stat. * | ||||
No. of CE (s) | (from trace test) | Prob. | from the max-eigen test) | Prob. | ||||
None | 110.5 | 0.000 | 110.5 | 0.000 | 77.84 | 0.000 | 77.84 | 0.000 |
At most 1 | 190.7 | 0.000 | 140.0 | 0.000 | 186.5 | 0.000 | 111.1 | 0.000 |
At most 2 | 95.67 | 0.000 | 57.01 | 0.000 | 105.7 | 0.000 | 70.05 | 0.000 |
At most 3 | 57.26 | 0.000 | 50.56 | 0.000 | 55.69 | 0.000 | 39.44 | 0.000 |
At most 4 | 23.94 | 0.020 | 23.94 | 0.020 | 44.27 | 0.000 | 44.27 | 0.000 |
North | South | ||||||
---|---|---|---|---|---|---|---|
ALL | 25% | 50% | 75% | 25% | 50% | 75% | |
LNGEX | 0.535 *** (0.092) | 0.114 *** (0.037) | 0.097 *** (0.026) | 0.081 * (0.033) | −0.215 * (0.403) | −0.118 (5.927) | −0.046 (10.069) |
LNCO2 | 0.247 *** (0.025) | −0.096 (0.071) | −0.068 (0.050) | −0.042 (0.063) | −0.0228 (0.357) | 0.044 (5.243) | 0.093 (8.906) |
LNFF | 0.276 *** (0.056) | 0.345 *** (0.098) | 0.347 *** (0.069) | 0.349 *** (0.088) | 0.202 (0.417) | 0.131 (6.115) | 0.077 (10.387) |
LNFDI | 0.030 (0.043) | 0.018 * (0.009) | 0.014 * (0.007) | 0.010 (0.008) | 0.003 (0.052) | 0.000 (0.767) | −0.001 (1.303) |
Year | 3.507 *** (0.370) | 0.026 *** (0.003) | 0.026 *** (0.002) | 0.026 *** (0.002) | 0.022 (0.016) | 0.020 (0.234) | 0.018 (0.397) |
LNGDPpc | North | South | |||||
---|---|---|---|---|---|---|---|
lngdppc L1. | 0.853 *** | 0.020 | 0.000 | 2.111 *** | 0.233 | 0.000 | |
lngex L1. | 0.038 *** | 0.007 | 0.000 | −0.592 *** | 0.114 | 0.000 | |
lnco2 L1. | −0.007 | 0.020 | 0.724 | −0.533 *** | 0.133 | 0.000 | |
lnff L1. | 0.278 *** | 0.041 | 0.000 | −0.058 | 0.075 | 0.442 | |
lnfdi L1. | 0.021 *** | 0.003 | 0.000 | −0.049 *** | 0.009 | 0.000 | |
lngex | |||||||
lngdppc L1. | −0.978 *** | 0.151 | 0.000 | 0.285 | 0.195 | 0.144 | |
lngex L1. | 1.219 *** | 0.055 | 0.000 | 0.704 | 0.128 | 0.000 | |
lnco2 L1. | 0.283 | 0.166 | 0.089 | −0.198 | 0.112 | 0.076 | |
lnff L1. | 1.776 *** | 0.405 | 0.000 | 0.003 | 0.095 | 0.972 | |
lnfdi L1. | 0.065 ** | 0.020 | 0.001 | 0.017 | 0.009 | 0.070 | |
lnco2 | |||||||
lngdppc L1. | −0.122 * | 0.060 | 0.044 | 4.418 | 0.947 | 0.000 | |
lngex L1. | 0.042 * | 0.019 | 0.026 | −2.472 | 0.442 | 0.000 | |
lnco2 L1. | 0.945 *** | 0.050 | 0.000 | −1.136 | 0.528 | 0.032 | |
lnff L1. | 0.241 * | 0.099 | 0.015 | −0.379 | 0.298 | 0.204 | |
lnfdi L1. | 0.018 ** | 0.006 | 0.001 | −0.164 | 0.042 | 0.000 | |
lnff | |||||||
lngdppc L1. | 0.048 | 0.040 | 0.233 | 0.709 | 0.168 | 0.000 | |
lngex | −0.070 *** | 0.009 | 0.000 | −0.365 | 0.082 | 0.000 | |
lnco2 L1. | 0.101 ** | 0.035 | 0.003 | −0.317 | 0.094 | 0.001 | |
lnff L1. | 0.289 *** | 0.067 | 0.000 | 0.759 | 0.062 | 0.000 | |
lnfdi L1. | −0.013 *** | 0.003 | 0.000 | −0.028 | 0.009 | 0.002 | |
lnfdi | |||||||
lngdppc L1. | −2.102 ** | 0.823 | 0.011 | 17.475 | 3.713 | 0.000 | |
lngex L1. | 1.870 *** | 0.293 | 0.000 | −9.639 | 1.885 | 0.000 | |
Lnco2 L1. | −1.681 ** | 0.765 | 0.028 | −8.022 | 2.099 | 0.000 | |
lnff L1. | 15.946 *** | 1.676 | 0.000 | −0.884 | 1.381 | 0.522 | |
lnfdi L1. | 0.903 *** | 0.155 | 0.000 | −0.181 | 0.193 | 0.348 |
LNGDPpc | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
1 | 1.000 | 0.000 | 0.000 | 0.000 | 0.000 | 1.000 | 0.000 | 0.000 | 0.000 | 0.000 | |
2 | 0.842 | 0.024 | 0.007 | 0.006 | 0.121 | 0.723 | 0.074 | 0.157 | 0.000 | 0.046 | |
3 | 0.678 | 0.055 | 0.025 | 0.051 | 0.192 | 0.795 | 0.057 | 0.112 | 0.000 | 0.036 | |
4 | 0.539 | 0.082 | 0.055 | 0.114 | 0.209 | 0.718 | 0.064 | 0.163 | 0.000 | 0.055 | |
5 | 0.430 | 0.105 | 0.097 | 0.170 | 0.197 | 0.751 | 0.059 | 0.140 | 0.001 | 0.050 | |
6 | 0.348 | 0.123 | 0.149 | 0.207 | 0.173 | 0.704 | 0.058 | 0.176 | 0.001 | 0.061 | |
7 | 0.285 | 0.136 | 0.208 | 0.223 | 0.147 | 0.721 | 0.058 | 0.163 | 0.001 | 0.058 | |
8 | 0.237 | 0.147 | 0.270 | 0.224 | 0.122 | 0.687 | 0.055 | 0.193 | 0.001 | 0.064 | |
9 | 0.200 | 0.154 | 0.331 | 0.213 | 0.101 | 0.693 | 0.058 | 0.185 | 0.002 | 0.062 | |
10 | 0.170 | 0.160 | 0.390 | 0.197 | 0.083 | 0.665 | 0.054 | 0.212 | 0.002 | 0.067 | |
lngex | |||||||||||
0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.013 | 0.987 | 0.000 | 0.000 | 0.000 | ||
1 | 0.173 | 0.827 | 0.000 | 0.000 | 0.000 | 0.034 | 0.927 | 0.028 | 0.000 | 0.012 | |
2 | 0.190 | 0.758 | 0.019 | 0.015 | 0.017 | 0.028 | 0.902 | 0.037 | 0.000 | 0.033 | |
3 | 0.177 | 0.686 | 0.059 | 0.048 | 0.031 | 0.048 | 0.853 | 0.053 | 0.001 | 0.045 | |
4 | 0.152 | 0.621 | 0.113 | 0.080 | 0.035 | 0.045 | 0.838 | 0.056 | 0.001 | 0.060 | |
5 | 0.126 | 0.566 | 0.174 | 0.102 | 0.032 | 0.058 | 0.811 | 0.061 | 0.002 | 0.068 | |
6 | 0.104 | 0.519 | 0.239 | 0.112 | 0.026 | 0.057 | 0.802 | 0.060 | 0.003 | 0.078 | |
7 | 0.086 | 0.479 | 0.302 | 0.112 | 0.021 | 0.065 | 0.786 | 0.061 | 0.004 | 0.084 | |
8 | 0.072 | 0.445 | 0.362 | 0.106 | 0.016 | 0.065 | 0.780 | 0.059 | 0.005 | 0.091 | |
9 | 0.060 | 0.415 | 0.416 | 0.096 | 0.013 | 0.071 | 0.769 | 0.058 | 0.006 | 0.096 | |
10 | 0.051 | 0.389 | 0.463 | 0.086 | 0.010 | 0.013 | 0.987 | 0.000 | 0.000 | 0.000 | |
lnco2 | |||||||||||
0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.942 | 0.000 | 0.057 | 0.000 | 0.000 | ||
1 | 0.115 | 0.002 | 0.884 | 0.000 | 0.000 | 0.763 | 0.105 | 0.094 | 0.001 | 0.038 | |
2 | 0.153 | 0.002 | 0.833 | 0.001 | 0.012 | 0.816 | 0.075 | 0.081 | 0.000 | 0.028 | |
3 | 0.171 | 0.008 | 0.785 | 0.007 | 0.028 | 0.762 | 0.099 | 0.096 | 0.001 | 0.043 | |
4 | 0.171 | 0.019 | 0.749 | 0.022 | 0.039 | 0.790 | 0.085 | 0.087 | 0.000 | 0.038 | |
5 | 0.160 | 0.031 | 0.725 | 0.040 | 0.044 | 0.759 | 0.096 | 0.099 | 0.000 | 0.047 | |
6 | 0.145 | 0.042 | 0.713 | 0.056 | 0.044 | 0.777 | 0.088 | 0.091 | 0.000 | 0.044 | |
7 | 0.129 | 0.053 | 0.712 | 0.066 | 0.040 | 0.755 | 0.092 | 0.102 | 0.000 | 0.050 | |
8 | 0.115 | 0.063 | 0.717 | 0.071 | 0.035 | 0.767 | 0.088 | 0.097 | 0.000 | 0.048 | |
9 | 0.102 | 0.072 | 0.725 | 0.071 | 0.030 | 0.751 | 0.089 | 0.107 | 0.000 | 0.053 | |
10 | 0.090 | 0.079 | 0.735 | 0.069 | 0.026 | 0.942 | 0.000 | 0.057 | 0.000 | 0.000 | |
lnff | |||||||||||
0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.699 | 0.001 | 0.069 | 0.230 | 0.000 | ||
1 | 0.111 | 0.123 | 0.109 | 0.656 | 0.000 | 0.623 | 0.074 | 0.075 | 0.194 | 0.034 | |
2 | 0.155 | 0.216 | 0.117 | 0.486 | 0.026 | 0.664 | 0.056 | 0.073 | 0.181 | 0.025 | |
3 | 0.167 | 0.309 | 0.100 | 0.370 | 0.054 | 0.648 | 0.065 | 0.081 | 0.169 | 0.037 | |
4 | 0.154 | 0.379 | 0.079 | 0.322 | 0.065 | 0.671 | 0.061 | 0.076 | 0.160 | 0.032 | |
5 | 0.134 | 0.425 | 0.072 | 0.306 | 0.063 | 0.663 | 0.062 | 0.086 | 0.152 | 0.038 | |
6 | 0.114 | 0.453 | 0.084 | 0.295 | 0.054 | 0.677 | 0.061 | 0.081 | 0.146 | 0.035 | |
7 | 0.097 | 0.466 | 0.114 | 0.277 | 0.046 | 0.671 | 0.060 | 0.090 | 0.140 | 0.038 | |
8 | 0.084 | 0.468 | 0.156 | 0.253 | 0.040 | 0.680 | 0.062 | 0.086 | 0.136 | 0.036 | |
9 | 0.072 | 0.463 | 0.204 | 0.226 | 0.035 | 0.699 | 0.001 | 0.069 | 0.230 | 0.000 | |
10 | 0.063 | 0.452 | 0.254 | 0.200 | 0.031 | 0.623 | 0.074 | 0.075 | 0.194 | 0.034 | |
lnfdi | |||||||||||
1 | 0.461 | 0.019 | 0.000 | 0.093 | 0.427 | 0.834 | 0.001 | 0.006 | 0.000 | 0.158 | |
2 | 0.399 | 0.047 | 0.005 | 0.095 | 0.455 | 0.768 | 0.070 | 0.098 | 0.000 | 0.064 | |
3 | 0.318 | 0.069 | 0.024 | 0.182 | 0.406 | 0.796 | 0.063 | 0.089 | 0.000 | 0.053 | |
4 | 0.260 | 0.083 | 0.059 | 0.251 | 0.347 | 0.790 | 0.065 | 0.098 | 0.000 | 0.046 | |
5 | 0.223 | 0.092 | 0.106 | 0.279 | 0.300 | 0.799 | 0.064 | 0.095 | 0.000 | 0.041 | |
6 | 0.199 | 0.098 | 0.159 | 0.277 | 0.268 | 0.796 | 0.064 | 0.099 | 0.000 | 0.040 | |
7 | 0.181 | 0.100 | 0.212 | 0.262 | 0.245 | 0.801 | 0.065 | 0.097 | 0.000 | 0.037 | |
8 | 0.167 | 0.102 | 0.261 | 0.243 | 0.227 | 0.799 | 0.064 | 0.100 | 0.000 | 0.036 | |
9 | 0.155 | 0.103 | 0.304 | 0.225 | 0.213 | 0.802 | 0.065 | 0.098 | 0.001 | 0.035 | |
10 | 0.144 | 0.104 | 0.342 | 0.210 | 0.200 | 0.800 | 0.064 | 0.101 | 0.000 | 0.035 |
North | South | |||||||
---|---|---|---|---|---|---|---|---|
Null Hypothesis | W-Stat. | Zbar-Stat. | Prob. | Direction of Causality | W-Stat. | Zbar-Stat. | Prob. | Direction of Causality |
LNGEX ↔ LNGDPpc LNGDPpc ↔ LNGEX | 3.499 5.23 * | 0.758 2.075 | 0.448 0.038 | Uni-directional | 4.766 * 7.789 | 1.858 4.336 | 0.063 1.000 | Uni-directional |
LNCO2 ↔ LNGDPpc LNGDPpc ↔ LNCO2 | 9.745 5.869 * | 5.498 2.557 | 4.000 0.010 | Uni-directional | 8.342 9.375 | 4.789 5.636 | 2 × 10−6 2 × 10−8 | |
LNFF ↔ LNGDPpc LNGDPpc ↔ LNFF | 9.425 3.802 | 5.255 0.987 | 1.000 0.323 | 5.246 * 4.325 | 2.251 1.496 | 0.024 0.134 | Uni-directional | |
LNFDI ↔ LNGDPpc LNGDPpc ↔ LNFDI | 4.780 * 2.625 | 1.730 0.095 | 0.085 0.924 | Uni-directional | 8.760 5.050 * | 5.131 2.090 | 3 × 10−7 0.036 | Uni-directional |
LNCO2 ↔ LNGEX LNGEX ↔ LNCO2 | 5.831 * 1.804 | 2.528 −0.528 | 0.014 0.597 | Uni-directional | 5.827 ** 2.567 | 2.727 0.055 | 0.006 0.955 | Uni-directional |
LNFF ↔ LNGEX LNGEX ↔ LNFF | 6.162 ** 2.648 | 2.779 0.109 | 0.005 0.912 | Uni-directional | 3.027 2.812 | 0.432 0.256 | 0.665 0.797 | |
LNFDI ↔ LNGEX LNGEX ↔ LNFDI | 1.522 * 2.596 | −0.741 0.073 | 0.458 0.943 | Uni-directional | 3.891 6.655 *** | 1.140 3.406 | 0.254 0.000 | Uni-directional |
LNFF ↔ LNCO2 LNCO2 ↔ LNFF | 4.939 3.472 | 1.851 0.737 | 0.061 0.466 | 3.047 4.182 | 0.448 1.378 | 0.653 0.167 | ||
LNFDI ↔ LNCO2 LNCO2 ↔ LNFDI | 2.535 1.533 | 0.027 −0.733 | 0.974 0.463 | 3.970 3.252 | 1.205 0.616 | 0.228 0.537 | ||
LNFDI ↔ LNFF LNFF ↔ LNFDI | 12.899 3.2932 | 7.892 0.602 | 3.000 0.547 | 5.246 ** 4.325 | 2.251 1.496 | 0.024 0.134 | Uni-directional |
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Donkor, M.; Kong, Y.; Manu, E.K.; Ntarmah, A.H.; Appiah-Twum, F. Economic Growth and Environmental Quality: Analysis of Government Expenditure and the Causal Effect. Int. J. Environ. Res. Public Health 2022, 19, 10629. https://doi.org/10.3390/ijerph191710629
Donkor M, Kong Y, Manu EK, Ntarmah AH, Appiah-Twum F. Economic Growth and Environmental Quality: Analysis of Government Expenditure and the Causal Effect. International Journal of Environmental Research and Public Health. 2022; 19(17):10629. https://doi.org/10.3390/ijerph191710629
Chicago/Turabian StyleDonkor, Mary, Yusheng Kong, Emmanuel Kwaku Manu, Albert Henry Ntarmah, and Florence Appiah-Twum. 2022. "Economic Growth and Environmental Quality: Analysis of Government Expenditure and the Causal Effect" International Journal of Environmental Research and Public Health 19, no. 17: 10629. https://doi.org/10.3390/ijerph191710629