GREENER GROWTH OR HIDDEN PRESSURE? SERVICES-LED STRUCTURAL TRANSFORMATION AND ECOLOGICAL FOOTPRINTS IN DEVELOPING COUNTRIES

Abstract

This study examines whether services-led structural transformation alleviates or intensifies environmental pressure in developing countries, using ecological footprints on the production side as a comprehensive environmental indicator. Using panel data for 46 developing economies from 2002 to 2018 and applying the system Generalized Method of Moments (GMM) estimator, the study tests the Environmental Kuznets Curve (EKC) hypothesis across disaggregated service sectors, including trade services, transport services, business services, financial services, real estate service, government services, other services, and aggregate services. The results reveal strong heterogeneity across services subsectors. Trade, transport, business, financial, real estate, and government services exhibit an inverted U-shaped relationship with ecological footprints, validating the EKC hypothesis. Conversely, other services and aggregate services display a U-shaped relationship, suggesting renewed environmental pressure at advanced stages of service expansion. Renewable energy consistently mitigates ecological footprints, while GDP growth and foreign direct investment often intensify environmental stress. These findings highlight that services-led growth does not automatically guarantee environmental sustainability and must be complemented by clean energy transitions and strong institutional frameworks.