Sustainability and Organizational Change AE

AN EMPIRICAL STUDY ON KEY INDICATORS OF ENVIRONMENTAL

QUALITY: GREEN BUDGETING - A CATALYST FOR SUSTAINABLE
ECONOMY AND A FACTOR FOR INSTITUTIONAL CHANGE

Violeta – Maria Cimpoeru*

Academy of Economic Studies, Bucharest, Romania

Abstract
This paper presents the phenomenon of institutional change through the implementation of
sustainable strategies of medium-term budgeting, having as an effect the growth of
opportunity to attract proper resources for social and environmental programs. The study
analyzes green budget practices and suggests several ways to use them in order to ensure
consistency in implementing key elements of sustainable economy.
Thus, we conducted an empirical study to explain the decisive factors impact (greenhouse
gas emissions and national income) on health expenditure and we obtained statistically
significant positive relationship, suggesting that green budgeting is an important factor for
sustainable economy.
The reasons behind the introduction of a sustainable perspective for budgeting in any
country are important since they will dictate, to a large extent, the way the medium term
budgeting will be institutionalized.

Keywords: sustainability, institutional change, green budget, the environment, social and
environmental impact

JEL Clasification: I15, O11, Q56

Introduction
At a planetary level, the greenhouse effect is exhibited through accelerated destruction of
the ozone layer, pollution of inland seas and rivers, forests massive destruction, etc.
Regional environmental imbalances are the result of accidents occurring on chemical
platforms in nuclear power plants, pollution of surface water and groundwater air pollution.
These imbalances, when identified and examined on time by authorities through decisions
concurrent with sound environmental policies can be dropped out (Dascalu, et al., 2010).
Sustainability assessment models are based on an interdisciplinary approach that recognizes
the need for an economy oriented towards advanced forms of decision and awareness-
raising. Exploring a wider area of decision-making situations in public and private
organizations in developed countries involves some special attention directed towards

*
Author’s contact: e-mail: [email protected]

Vol. XIV • No. 32 • June 2012 485

AE An Empirical Study on Key Indicators of Environmental Quality: Green Budgeting -
a Catalyst for Sustainable Economy and a Factor for Institutional Change

stakeholders’ needs for accounting information (Bebbington, et al., 2007). Companies do

not adopt sustainable measures for altruistic reasons, but rather to ensure increased
profitability. Profitability and business expansion are reasons which make managers use
sustainable tools of decision whenever their business strategy is designed (Lungu, et al.,
2007).
At global level, corporate social responsibility has already become a part of day-to-day
business. Internationally renowned companies invest a large amount of their turnover in this
type of programmes. The budgets assigned by organisations for the development of
community programmes reach figures that at first glance may seem stunning. However, the
persons managing these organisations see these figures as a long-term investment with
significant results for their business (Dinu, 2011). Thus, we can state that environmental
corporate social responsibility turned into a global management paradigm. Therefore,
governments should adopt these organizational changes and build green strategy based
budgets.
Traditionally, public policies were considered as outcomes of sequential processes that
consist of a set of stages of preparation by expressing selection rules which need to be
implemented and assessed (Brewer and DeLeon, 1983, Ellefson, 1992; Wegrich and
Werner, 2007, quoted by Primmer, 2011). These public policies implement clear
measurable targets, standardized procedures, and politically non-influenced management
and determine sustainable institutional changes.
Jerrett et al. (2003) argue that the relationship between environmental conditions,
government policies to protect public health and ecosystem and health care costs lead to a
larger debate on itemizing costs in terms of health care system. Environmental
contamination costs are indisputable and put pressure on public budgets, potentially
increasing health expenditure (Narayan and Narayan, 2008; Pearce and Turner, 1991). Air
pollution is the main source of environmental cost. This causes environmental damage,
which are borne by the society, and human health impairment with negative repercussions
on labor productivity, business development and economic growth of countries (Narayan
and Narayan, 2008). Environmental costs are defined as those costs having a direct
financial impact on an entity as well as costs that impact on individuals, society and
environment which the entity is not responsible for (according to Environmental Protection
Agency, EPA, 1996, quoted by Caraiani, et al., 2010).
Studies of the literature based on surveys or cross-sectional data obtained a negative
association between air pollution and human health, namely: Hansen and Selte (2000),
explores the relationship between air pollution, sickness and labor productivity, Hausmann
et al. (1984), Ostro (1987), and Nentjes Zuidema (1997), Ostro and Rothchild (1989),
examines the relationship between total particulate matter or fine particles and lost work
days, Narayan and Narayan (2008) explores the relationship between the cost of public
health, sulfur oxide emissions, emissions of nitrogen oxides and carbon monoxide
emissions and real income per capita, and Bloomberg and Aggarwal (2008), examines the
relationship between health costs, gross domestic product per capita, emissions of carbon
dioxide and mortality rate, etc.
If the private and public sectors focused on changes to be implemented so as to reduce
greenhouse gas emissions by 2020, the Kyoto protocol countries would fulfill the
obligations incurred and achieve estimated parameters. According to the study conducted

486 Amfiteatru Economic

Sustainability and Organizational Change AE
by Markandya et al. (2008) on EU countries, China and India, changes in the way of
generating electricity would reduce not only the amount of carbon dioxide, air pollution and
mortality default. Population exposure to air pollution or other environmental
contamination leads to increased expenditure on public and private health system. If
properly designed and implemented, social programs could lead to important results
beneficial to public health.
Economic efficiency, growth and economic stability are based on a particular culture and
social development, on resource diversity and availability. In its turn, the environment is
subject to the size of economic activity and social development as the quality of a society
came out both from economic efficiency and stability as well as environmental quality
(Zaharia, et al., 2010). Thus, green budgeting may become an important support in gaining
people's trust in political parties and achieving social stability that will lead to a sustainable
institutional change.
Through our study we propose to structure the referential frame of the medium-term budget
system within which we are also approaching the green budgeting. Then, we are explaining
the research methodology making reference to the data collecting process, the research
method and are outlining the research hypothesis. The next section is reporting the results
of the empirical study obtained further to examining correlations between components of
the budget system (i.e. health expenditure per capita and gross national income per capita)
and carbon dioxide emissions. Finally, we are attempting to bring over that institutional
change through turning social and environmental programs into a priority represents a sine
qua non condition for a sustainable economy.

1. Conditions to implement medium-term budget system

In the administrative tradition, values are calculated in the budget from previous budgets,
not related to a plan or a change design. The value added by a strategic management control
consists in harmonizing resource allotment and strategic approach (Caraiani, et al, 2010).
The approach of a sustainable budgetary system is looking for making a connection
between the allocation of expenditures and government legislative priorities, using the
medium term (three to five years) prospect on budget planning, which is differently applied
in separate institutions. This "institutional sensitivity" is necessary for a successful use of
budget systems. In technical terms, Petkova et al., (2011) defines the medium-term
expenditure framework as consisting of:
 an increasing (hierarchical) budget allocation;
 a decreasing estimate of current costs and on a medium term, a of the existing laws
and of the new ones, too;
 a process of matching costs and available resources within the annual budget cycle.
Medium-term budgets can be defined as successive frames or predictions of revenues and
expenditures for a period of 3 or 5 years, which are regularly updated. They are considered
as means of budget management rather than financial instruments with legal values and
lead to institutional change. This doesn't imply formal rules, namely filed or legal, but
contains rules on budgetary policies and organizational practice, essentially the actors'
training on applying and respecting these rules.

Vol. XIV • No. 32 • June 2012 487

AE An Empirical Study on Key Indicators of Environmental Quality: Green Budgeting -
a Catalyst for Sustainable Economy and a Factor for Institutional Change

A medium-term budget assumes that the annual budget is structured around the general
programs that are defined along with the legislative objectives and specific results.
Negotiations on the annual budget focus on new laws, while the cost of existing programs
only is updated in technical terms. The update is based on multi-annual estimates prepared
in the previous years. Credibility of the system is based on government ability to assess
available resources for the public sector over several years, usually in multi-annual
macroeconomic structures and tax legislation. Macroeconomic and fiscal development of
more accurate predictions is essential for choosing the optimistic scenario for population. A
policy-oriented optimistic scenario will lead to excessive costs, relative income, higher
deficits and higher public debt. According to best practices by comparing government
estimates with those made by researchers in the private sector economic institutions or
NGOs (and using surveys on consumer confidence), a more realistic perspective is reached.
While estimating and modeling the process is an exercise under a technocratic principle,
there is a number of policy and strategic decisions that are subject to government elections
and will make the economy hence the power of the country tax base. Some of these
decisions include the economy structure to be supported by the government, the guaranteed
level of state debt and the general tax law. Unfortunately, these government strategies
include a small number of social and environmental programs. Efficient green budgeting is
a government budgeting that allows providing resources for a particular purpose without
jeopardizing the sustainability of a financial position or the stability of economy.
The rationale behind the green budgeting leads to a space creation so as governments
increase expenditures relating to national priority areas in a sustainable manner. By
reconciliating the lower limit of resources to the upper ceiling of cost estimates associated
with existing laws, a sustainable approach helps to identify a medium-term available space,
so as to allow that priority laws be budgeted in a predictable manner. The fiscal space can
be created by a stage apportionment of the public expenditure or by an increase of total
available resources, either in the form of additional income, or through foreign aids.
Foreign aids cannot be used as a source of real fiscal space rather than income tax since
they are not predictable.
The concept of fiscal space is supported by the argument that additional expenditure should
be concentrated on areas that will increase future tax revenues and thus paying all or part of
it themselves (Heller, 2005).
Medium-term budget structures may be continuous, when overlapping the preceding and
succeeding cycles in a year or two, depending on the projects, or periodical, when including
cycles which succeed and appear at the beginning of the period they are applied to and run
within until this period ends. Continuous and periodical budget structures may be further
reviewed during their execution.
Schiavo-Campo (2008) defines three main elements included in the medium-term budget
planning, namely:
 Traditional fixed-term planning;
 Predicting the composition of expenditures;
 Predicting the functional composition of expenditures.

488 Amfiteatru Economic

Sustainability and Organizational Change AE
Economic composition of expenditure plan implies that the government's financial
operations are structured in terms of their economic impact, distinguishing: capital and
current expenditures, revenues, grants, transfers from state to central government and other
public institutions; interest expenses. Functional composition of expenditure implies that
government activities and expenditures are structured in relation to their purpose, eg police,
defense, education, health, transport and environmental protection. The United Nations
standard for functional classification used in the preparation of national accounts and
government finance statistics, spots 14 main groups, 61 groups and 127 secondary sub-
groups (Schiavo-Campo, 2008).
Documents that underpin the budget plan developed by ministries and organizations should
include economic activities which have a positive impact on the environment. Projects
included in a program are usually not properly analyzed or evaluated financially or
economically, therefore it is unclear whether these measures are environmentally efficient.
The costs of the investment program are basically estimated on computations of ministries’
experts by using standard costs associated with different kinds of works and services. When
a new program is launched, experts from the ministries prepare cost estimates and have to
check the market conditions by sending information requests in connection with prices of
certain works and services.
Given the multitude of actors involved into green budgeting, it is unclear how these other
actors have done their share of costs and if all parameters and assumptions are consistent
across different policies. One of the major problems in this context is the choice of discount
rates in evaluating programs and policies. Different ministries may use rates, different
environmental costs and benefits, and if identified, they can be updated in different ways,
and can lead to significant differences in the expected results. There is a manifest need for a
harmonized methodology to draft environmental. In developed countries, the program cost
estimates are supported by feasibility studies of projects involved. Viable projects take into
account the cost – effectiveness which is an important criterion in public finance. This
requires an estimation of investment costs, operating and maintenance costs and
environmental impact.
The cost-effectiveness indicator is a ratio between costs and environmental effects, the
more this cost is small, the more public funds are spent efficiently. If the environmental
impact is not specified in the project / program, the cost-effectiveness cannot be
significantly determined. Within the budgeting of investment programs, the aim should be
to quantify the overall public investment budgets in future years and reduce the waste of
valuable assets due to a lack of sufficient operations and maintenance costs. To implement
a system of medium-term budgeting is not a simple process; it is a time-consuming
operational exercise and requires needs the whole administration sector converging efforts.
It is applied today in most Organisation for Economic Cooperation and Development
(OECD) countries, and is based on the projected view of Australia, a leader of OECD
countries in terms of reforms that control expenditure growth. Australia is the first country
to introduce estimates approach to strengthen the link between government laws and
expenditure programs and improvement of law accessibility by combining projection
methods with institutional arrangements to force results.
A sustainable budget requires a high level of political support, commitment to reforms and
a government representative to guide and supervise the process. If there is no real demand

Vol. XIV • No. 32 • June 2012 489

AE An Empirical Study on Key Indicators of Environmental Quality: Green Budgeting -
a Catalyst for Sustainable Economy and a Factor for Institutional Change

for medium-term planning, the reform will be only a formal one, while on public resources
will be lost.
We can mention that a sustainable budget model works if there are certain preconditions
(Petkova, et al., 2011), as follows:
 political discipline and responsibility of a well-organized public service;
 parliamentary system interested in a sustainable system which it also supports;
 availability of a large number of economists, accountants, econometrists, highly
skilled sector specialists both in the Ministry of Finance and the individual ministries;
 ability to put a hard budget constraint;
 availability of reliable data offered on time;
 a certain degree of flexibility allowed to individual ministries and budget managers;
 a diversified economy providing a ground to government revenue planning and
which does not depend on external sources.
The success of a budget reform process also depends on the budget ground such as: budget
structure, range and classification, accounting, evaluation and audit. If these grounds are
not well established, introduction of a sustainable system might not produce predicted
benefits due to a weak public expenditure management (Schick, 1998).
Finally, it is important to establish and define budgeting approach in a manner
corresponding to the capabilities and constraints of every country. The budgetary policies,
based on a succession of appropriate and realistic measures, can significantly help improve
the control regarding effective resource allocation and their efficient use by the
government.

2. Environment decontamination through green programs

The economic crisis is preceded and accompanied by open conflicts in communication,
where internal and external problems are overlapping, which threaten the integrity, the
reputation or the existence of an economy and, as an economic policy, it becomes
synonymous with a failure of administration, a decrease in governability, culminating with
the inconsistency and incoherence of the survival of an economic system (Săvoiu, et al.,
2012). Most studies show that recession is more severe than originally predicted and
implementing anti-crisis programs by both Romania and other countries have not yet
managed to lead to normalization of the economy, so orientation towards environmental
policies would be a first step in overcoming the global crisis. Recent studies show that
carbon dioxide emissions must decrease worldwide and halve by 2050 as compared to
1990, especially in high-income countries.
Environmental ministries are integrated into the national budget planning system and into
medium-term planning systems and follow the same laws and procedures as the
government administration. The allocation of budgetary resources is essentially a political
process, usually involving senior government majority. This can be a disadvantage in terms
of considering environmental issues since environment ministries are often new elements in

490 Amfiteatru Economic

Sustainability and Organizational Change AE
the government administration and are led by young ministers whose political influence is
rather limited (Petkova, et al., 2011).
Theoretically, new legislative initiatives are subject to the same discipline as in other
sectors and depend, to a large extent, on the political support that such measures receive
when the resource allocation priorities are negotiated within a government. The emphasis
on enacting a sustainable system must be supported by a form of performance-based budget
planning. The transformation of political priorities in factual results for population structure
requires that the budget supports a more programmatic approach. Meanwhile, it is
important that budget structures are not so restrictive as to limit the ability of agencies to
use the administrative resources available to maximize proficiency.
Development of sector strategies and programs is the key starting point of ministries for a
sustainable system. The quality of these programs will call forth to a large extent the
resources the government will allocate to this sector. Based on these allocations, the
Ministry of Environment and other ministries should involve multi-sectoral programs into
the multiannual budget planning (Petkova, 2009). Thus, higher and more appropriate
budget allocations get only programs including sustainable transparent and visible results
within the government.
According to the Plan of the Romanian Government, the funds allocated by the European
Commission to the environment sector for 2007-2013 originate in two European Union
funds, i.e. the European Regional Development Fund and the Cohesion Fund. The strategy
and distribution of these funds to every environment sector is part of the Sectoral
Operational Programme Environment (SOP ENV). The total budget amounts to about 5.6
billion Euros, out of which 4.5 billion Euros represent a European Union non-refundable
grant, and over 1 billion Euros represent the national contribution. The program was
developed by the Ministry of Environment, as a Managing Authority for SOP Environment
(SOP ENV). Its targets follow Romania’s development requirements also after 2013, by
investments that lay the foundations of a sustainable development in environmental
infrastructure.
According to a hypothesis supporting FEASIBLE methodology not all governments should
fund all or most of the necessary environmental expenditures, or support most of the
projects. The main role of government in relation to funding is to set laws, regulatory and
institutional structures as well as motivational structures within which resources from
consumers, financial markets, capital markets, local budgets and businesses to be deployed
in a complementary way and applied as effectively as possible to achieve acceptable goals
(OECD, 2003).
The increased demand for natural resources and energy led to enormous pressure on the
planet, and therefore measures aiming at changing unsustainable patterns of production and
consumption should be applied globally. Although sustainable development principles have
been suggested to provide guidance for their implementation, sustainability remains a
contested and value-laden concept. (Harding, et al., 2006).
Since emissions of greenhouse gases lead to climate change, the program of reducing them
is the most challenging environmental problem because it threatens the life support system.
OECD countries are among the biggest polluters in the world, carbon dioxide emissions
increased from 11 461 metric tons in 1990 to 12,988 metric tons in 2005, representing an
annual growth rate of 1.13%, between 2006 - 2007 growth rate is 1%, and in 2008 it

Vol. XIV • No. 32 • June 2012 491

AE An Empirical Study on Key Indicators of Environmental Quality: Green Budgeting -
a Catalyst for Sustainable Economy and a Factor for Institutional Change

decreased to 0.99%. Although there are small steps and long distances, it represents a green
progress and a hope that the commitments assumed by the member states in the Kyoto
Protocol to reduce emissions of greenhouse gases over the period 2008 - 2012 will be met.
Big-wave lengths absorbers in the atmosphere are water vapor, clouds (ice-condensed and
liquid water) well-mixed greenhouse gas emissions (carbon dioxide, methane, nitrous
oxide, chloro-fluoro-carbonate ), ozone, aerosols (sulphates, nitrates, dust, soot and other
carbon aerosols) and very small contributions from other absorbers. Among these factors,
water vapor, clouds and carbon dioxide prevail, while other aerosol contributors produce
small effect at an overall outcome level. For each pair of absorbers, there is a potential
spectral overlap. For example, both water vapor and carbon dioxide absorption lines have
an overlapping spectrum spread across LW (long waves - large wavelengths). This means
that the sum of each absorber effect acting separately is greater than when acting together.
Therefore, the effect of a maximum absorption (when acting alone) may be significantly
different from a minimal effect (only when it is removed). Spatial distribution of absorbers
and temperatures will impact on the global average (Schmidt, et al., 2010).
Unfortunately, crises are inevitable but their management must be planned, meaning that
certain procedures may be agreed in advance and applied when a crisis appears (Caraiani, et
al., 2010). Ecological crises can be resolved through green programs to reduce emissions of
greenhouse gases and produce solutions to mitigate the economical, political and social
crises.
In response to concerns about environment protection, company and government managers
should implement green programs to control environmentally harmful substances by
increasing an efficient use of raw materials, energy, water, methods of mitigation and toxic
waste disposal.

3. Methodology and database

In the last years, the call for increased social responsibility, by governments, investors and
corporations, was distinctive and urgent due to the global crises that took a central role.
Financial market breakdowns, severe economic declines and food shortages required
immediate responses. It seemed that climate change finally received due attention, with
growing recognition of critical consequences without a significant change in the course
Lungu, et al., 2011). In order to facilitate proper understanding of sustainable economy and
institutional change, we have chosen to focus on two environmental goals: i.e. to decrease
environmental risk factors for human health and promote sustainable budgetary methods to
strengthen ecosystems and healthy management of natural resources. Increasing
environmental performance became a more and more prominent requirement in all fields.
Its accomplishment is made within the framework of changes promoted by governmental
environmental policies and it is still featured by many uncertainties (Bran, et al., 2010).
This paper builds on previous empirical research exploring the dependency relationships
between a number of indicators of sustainable economy and introduces the hypothesis: The
positive relationship of the determinants (carbon dioxide emissions and gross national
income) on health expenditure.
The research is focusing on a comparative analysis using a statistical-econometric
methodology and statistical parameters measuring symmetry, normality of distribution, the

492 Amfiteatru Economic

Sustainability and Organizational Change AE
correlation between various statistical data are obtained by the regression function. Data
processing for analyzed indicators was conducted though Eviews.

3.1 Indicators of empirical study

The data series required for estimating the empirical study values are cross-sectional data
for the year 2008 for 178 countries, collected through dependent and independent variables.
The dependent variable is represented by the total health expenditure meaning the value of
public and private health expenditure in relation to the total population. This covers the
provision of health services (preventive and curative), family planning activities, nutrition
activities and emergency aid designated for health, but does not include water supply and
sewerage. The values are expressed in U.S. dollars and were taken from the World Bank
(2011).
Independent variables are the carbon dioxide emissions and gross national income.
Carbon dioxide emissions are those resulting from fossil fuel burning and cement
manufacture. These include the carbon dioxide produced during consumption of solid,
liquid, gas and fuel gas and combustion. Values are expressed in kt, and were taken from
the World Bank (2011).
GNI per capita is the value added by all resident producers plus any product taxes (minus
subsidies), which are not included in the valuation of the output, plus the net receipts of
primary income (compensation of employees and property income) from abroad. Values
are expressed in U.S. dollars and were taken from the World Bank (2011).
The data used in the paper is pertaining to the year 2008 (the index values and the carbon
dioxide emissions are available until this year), and indicators values for 178 countries were
found.

3.2 Analysis method – multiple regression

Based on quantitative data (178 countries grouped in alphabetical order) we develop a
multiple regression model to highlight the impact of decisive factors, respectively the
economic and environmental components, which are included in our study through two
independent variables: the gross national income per capita (GNIC) and the carbon dioxide
emissions (CO2), on the social component of sustainability which is quantified by the value
of health expenditure per capita (HEC) as a dependent variable.
The regression model reads the following:
yi = a+ b*xi + c*zi, i = 1,…,n
where
yi represents HEC, calculated for 2008
xi represents GNIC, at 2008 level
z i stands for CO2 emissions at 2008 level
n is the number of countries under examination

Vol. XIV • No. 32 • June 2012 493

AE An Empirical Study on Key Indicators of Environmental Quality: Green Budgeting -
a Catalyst for Sustainable Economy and a Factor for Institutional Change

3.3 Descriptive statistics

In this section we are introducing a series of statistical indicators computed for the
database: i.e. minimum, maximum, average, median, standard deviation, skewness and
kurtosis values of the dependent and independent variables included in the study. For a
symmetrical distribution of a group of numbers, average, the standard deviation and
measures of central tendency are all the same. For an asymmetric distribution of a group of
numbers, they can be different.
For skewness, statistical parameter which measures the lack of symmetry, a value close to 0
indicate a normal distribution of data series analyzed, while values significantly different
from 0 (positive or negative) reflect the degree of distance from the normal distribution.
Kurtosis indicator measures whether the elements of a series are close or far from the
normal distribution. A high value indicates that the data series has a distinct peak to
average. We are using Jarque-Bera statistic test as a link between these two statistics
indicators that measure the closeness to normality. Testing the null hypothesis via Jarque-
Bera test shows null values of Skewness and Kurtosis parameters.
For the data studied, Series HEC is 977.88 Mean values ranging from a Minimum of 10 and
a Maximum of 8019. Standard Deviation of 1720.12, shows that the data are heterogeneous.
Skewness is 2.4, Kurtosis is 8.08, Jarque-Bera 363.19 shows data drifting away from the
central value of this series (Figure no.1).
90
Series: HEC
80 Sample 1 178
70 Observations 178

60 Mean 977.8876
Median 259.5000
50
Maximum 8019.000
40 Minimum 10.00000
Std. Dev. 1720.125
30 Skewness 2.406329
Kurtosis 8.080199
20

10 Jarque-Bera 363.1949
Probability 0.000000
0
0 1250 2500 3750 5000 6250 7500

Figure no.1: Data analysis for HEC series (Histogram and stats)

GNIC indicator series is 13046.99 mean value ranging from a Minimum of 290 to a
Maximum of 67220. Standard Deviation of 14 070 shows that the data are heterogeneous.
Skewness is 1.45, Kurtosis is 4.59, Jarque-Bera is 81.60, therefore values drifted away from
those of a normal distribution (0 and 3, respectively) (Figure no. 2).
For data series describing CO2 Mean value is 197,193.7 ranging from a Minimum of 29 and
a Maximum of 7,031,916. Standard Deviation of 822,573 suggests a wider range of values
for this set of data. Skewness, a statistical parameter which measures the lack of symmetry,
is 6.8. Kurtosis is 50.88, Jarque-Bera 18,381.63 (Figure no. 3) shows absence of data
normal distribution of this series.

494 Amfiteatru Economic

Sustainability and Organizational Change AE
50
Series: GNIC
Sample 1 178
40 Observations 178

Mean 13046.99
30 Median 7630.000
Maximum 67220.00
Minimum 290.0000
20 Std. Dev. 14070.26
Skewness 1.454213
Kurtosis 4.594775
10
Jarque-Bera 81.60000
Probability 0.000000
0
0 12500 25000 37500 50000 62500

Figure no. 2: Data analysis for GNI series (Histogram and stats)
160
Series: CO2
Sample 1 178
Observations 178
120
Mean 197193.7
Median 10744.50
Maximum 7031916.
80
Minimum 29.00000
Std. Dev. 822573.5
Skewness 6.808258
40 Kurtosis 50.88541

Jarque-Bera 18381.63
Probability 0.000000
0
0 2500000 5000000

Figure no. 3: Data analysis for CO2 series (Histogram and stats)

3.4 Correlation analysis

The deterministic relationship between the three data series expresses dependence between
the dependent variable, HEC and independent variables, GNIC and CO2 (Figure no. 4).
10000
8000
6000
4000
2000
4000
0
2000 -2000
0

-2000

-4000

-6000
25 50 75 100 125 150 175

Residual Actual Fitted

Figure no. 4: The actual adjusted values of the series HEC and residues series
(Eviews)

Vol. XIV • No. 32 • June 2012 495

AE An Empirical Study on Key Indicators of Environmental Quality: Green Budgeting -
a Catalyst for Sustainable Economy and a Factor for Institutional Change

Whereas, in reality, the dependence between the dependent variable, HEC and independent
variables, GNIC and CO2 emissions, is a stochastic one and in the HEC determination only
two factors were taken into account (although dependencies are more numerous), the
econometric model is given by:

yi  a  b  xi  c  zi   i , i  1,..., n
where ε is the error of significance (specification), which is a random variable (stochastic)
that has certain probabilistic properties, being given by inaccurate relationships between
variables. Estimating the parameters for the proposed model, the relationship between the
dependent variable, HEC, and the independent variables, GNIC and CO2, we obtain the
following pattern for the regression equation (Table no.1):
HEC = -406.27 + 0.1026 * GNIC + 0.00022 * CO2

Table no. 1: The results of estimates for regression model parameters

Dependent Variable: HEC

Method: Least Squares
Date: 01/26/12
Sample: 1 178
Included observations: 178
HEC=C(1)+C(2)*GNIC+C(3)* CO2
Coeficient Std. Error t-Statistic Probability
C(1) -406.2784 87.14022 -4.662353 0.0000
C(2) 0.102680 0.004667 22.00173 0.0000
C(3) 0.000226 7.98E-05 2.826796 0.0052
R-squared 0.757919 Mean dependent var 977.8876
Adjusted R-squared 0.755153 S.D. dependent var 1720.125
S.E. of regression 851.1527 Akaike info criterion 16.34777
Sum squared resid 1.27E+08 Schwarz criterion 16.40140
Log likelihood -1451.952 Durbin-Watson stat 1.945170
t-Student test probabilities for the independent variables coefficients are below 5%, thus
rejecting the null hypothesis, that the slope of the regression is insignificantly different
from zero, so both exogenous variables have significant influence on the dependent variable
HEC. We test the significance of the regression model parameters by Wald test (Table no.
2). It is noted that the associated probabilities are 0.00, Fisher and Hi-square values are very
high, so the parameters are significantly different from 0.
Table no. 2: Wald Test
Wald Test
Equation: Colinearity
Statistical Test Value df Probability
F-statistic 37226.19 (1, 175) 0.0000
Hi- squared 37226.19 1 0.0000
Summary of null hypothesis:
Normalized restriction (= 0) Value Standard error
-1 + C(2) + C(3) -0.897094 0.004650

496 Amfiteatru Economic

Sustainability and Organizational Change AE
To substantiate the assumptions made in defining the regression model we are testing
simple correlations between variables by Klein criterion and autocorrelation error using
Durbin-Watson test.
Table no 3: Simple correlations between variables
Variables HEC GNIC CO2
HEC 1.000000 0.864214 0.297134
GNIC 0.864214 1.000000 0.225292
CO2 0.297134 0.225292 1.000000
The correlation coefficients between HEC and CO2, CO2 and GNIC are smaller than the
ratio of determination (0.7579), and between HEC and GNIC determination report is
slightly outdated. We conclude that there is highly correlated independent variables (table
no. 3). DW statistic value: 1.945170, the limits du <DW <4 - du. → 1.58 <1,9451 <2.50 (α
= 0.01, dl = 1.50, du = 1.58) indicates that residual variables are not auto correlated,
accepting the null hypothesis (table no. 1).
Another test proposed to check the model is White Test referring to error homoskedasticity.
Lack of equal dispersions was checked by analyzing determinative coefficient (R ² =
86.40). Its value is greater than the table value and we can say that between model errors
there is not any heteroskedasticity (table no. 4).
By applying these tests on the proposed regression model it can be stated that the model is
valid.
Table no. 4: White Test
White Heteroskedasticity Test:
F-statistic 40.79893 Probability 0.000000
Obs*R-squared 86.40454 Probability 0.000000

Test Equation:
Dependent Variable: RESID^2
Method: Least Squares
Date: 01/26/12
Sample: 1 178
Included remarks: 178
Variable Coefficient Std. Error t-Statistic Prob.
C 107336.7 195685.9 0.548515 0.5840
GNIC -11.84168 24.64169 -0.480555 0.6314
GNIC^2 0.002415 0.000489 4.941559 0.0000
CO2 -1.380021 0.598971 -2.303988 0.0224
CO2^2 2.04E-07 9.58E-08 2.124043 0.0351
R-squared 0.485419 Mean dependent var 712250.9
Adjusted R-squared 0.473521 S.D. dependent var 2123989.
S.E. of regression 1541142. Akaike info criterion 31.36163
Sum squared resid 4.11E+14 Schwarz criterion 31.45101
Log likelihood -2786.185 F-statistic 40.79893
Durbin-Watson stat 2.065413 Prob(F-statistic) 0.000000

Vol. XIV • No. 32 • June 2012 497

AE An Empirical Study on Key Indicators of Environmental Quality: Green Budgeting -
a Catalyst for Sustainable Economy and a Factor for Institutional Change

4. Results and debates

The obtained results confirm the hypothesis stated in the research and we are therefore
interpreting the regression equation as follows: if GNIC increases by $ 1, then health costs
increase by 0.102680 dollars, if CO2 emissions increase by 1kt then health costs increase by
0.0002 dollars. Revenue growth correlated with increased emissions of greenhouse gases
generate an unsustainable economy. Worldwide is clearly a need for organizational change
by adopting green practices budgetary leading to reduce greenhouse gas emissions, improve
human health and the allocation of resources for sustainable economic growth.
The report of determination (R-squared) has a high value, almost 75.79% of the HEC
variance is explained by the two factors variation, i.e. the indicator GNIC and CO2
emissions. The statistics relation between the endogenous and exogenous variables is quite
strong. The value of the free component shows that the variables not included into the
econometric model have, as a whole, a negative effect on the development of HEC. The
validity of this model can be sustained on account of low-probability values, the standard
errors and the applied tests. Student t-test probabilities for the independent variable
coefficient shows rejection of the null hypothesis that the regression slope is insignificantly
different from zero, thus obtaining a correctly specified model.

Conclusions
Our research contributes to sustainable economic literature, because the shaping of decisive
factors on health expenditure highlights the need for institutional change by prioritizing
social and environmental programs. In other words, we proposed a model that examined the
relationship between health expenditures per capita, GNI per capita and carbon dioxide
emissions, by which we are promoting the deployment of sustainable budgets. The
empirical analysis has been grounded on a multiple regression model for 178 countries
whose data are related to 2008 and we have noticed some undeniable evidence between
health expenditure per capita and determinant factors.
Since the examined variables are related to a single year, we can say that on a short term,
revenues and carbon dioxide emissions were statistically significant - both having a positive
impact on health expenditure. Once the countries experience an economic growth, there is
also increase in oil, crude oil, gasoline, kerosene, diesel and fuel consumption, so that the
effects on a medium term will be greater than on a shorter term on health expenditure. Our
remarks implicitly refers to the fact that unsustainable economic growth will increase
environmental degradation, thus increasing the risk population decay induced by pollution,
and mortality. If there is increase of health costs due to funding allotted for health care
offered to those affected by environmental deterioration, then there are fewer funds
available to improve the quality of environment and if this process continues, it is likely to
lead to greater pressures exerted on government budgets.
As it is specifically outlined in literature, that pollution damages the environment, it implies
that health management policy should include considerations for the use of biofuels in all
countries.
Institutional change promotes green budgeting policies in order to achieve a reduction of
the global warming emissions of greenhouse gases and other phenomena caused by global

498 Amfiteatru Economic

Sustainability and Organizational Change AE
pollution, thus avoiding an abnormal development of the environment and human health
worldwide. The most obvious strategies for a sustainable economy are those related to
reducing waste, increasing resource efficiency and reusing waste.

Aknowledgements
This work represents the partial results of a doctoral research, which was made with the
support of the doctoral scholarship within the project Doctorate in economy at the Europe’s
knowledge standards (DoEsEc), POSDRU/88/1.5/S/55287 contract, co-financed by the
European Social Fund.

References
Andrei, T. and Bourbonnais, R., 2008. Econometrie. Bucharest: Ed. Economica.
Bebbington, J., Brown, J. and Frame, B., 2007. Accounting technologies and sustainability
assessment models. Ecological Economics, 61 (2-3), pp. 224-236.
Bloomberg, M.R. and Aggarwala, R.T., 2008. Think Locally, Act Globally How Curbing
Global Warming Emissions Can Improve Local Public Health. American Journal of
Preventive Medicine, 35 (5), pp. 414-423.
Bran, F., Ioan, I. and Rădulescu, C.V., 2010. Internal drivers of environmental performance.
Case study: the trading activity. Amfiteatru Economic, XI (27), pp. 145-154.
Caraiani, C. et al., 2010. Contabilitatea verde – Strategii transdisciplinare către
contabilitatea socială şi de mediu. Bucharest: Ed. ASE.
Dascălu, C. et al., 2010. The externalities in social environmental accounting. International
Journal of Accounting and Information Management, 18 (1), pp.19-30.
Dinu, V., 2011. Corporate Social Responsibility – Opportunity for Reconciliation between
Economic Interests and Social and Environmental Interests. Amfiteatru Economic,
XIII(29), pp. 6-7.
Hansen, A.C. and Selte, H.K., 2000. Air pollution and sick-leaves: a case study using air
pollution data from Oslo. Environmental and Resource Economics, 16(1), pp. 31-50.
Harding et al., 2006. Enhanced gene transfer efficiency in the murine striatum and an
orthotopic glioblastoma tumor model, using AAV-7-and AAV-8-pseudotyped vectors.
National Center for Biotechnology Information, 17(8), pp. 807-820.
Hausmann, J.A., Ostro, B. and Wise, D.A., 1984. Air Pollution and Lost Work. [online]
Available at: <http://www.nber.org/papers/w1263.pdf> [Accessed 15 December 2011].
Heller, P., (2005), Understanding Fiscal Space, [online] Available at: <http://www.ieo-
imf.org/external/pubs/ft/pdp/2005/pdp04.pdf> [Accessed 20 November 2011].
Jerrett, M., Eyles, J., Dufournaud, C. and Birch, S., 2003. Environmental influences on
health care expenditures: an exploratory analysis from Ontario, Canada. Journal of
Epidemiology and Community Health, 57(5), pp. 334–338.
Lungu, C.I., Caraiani, C. and Dascălu, C., 2007. New Perspectives on Corporate Reporting:
Social-Economic and Environmental Information. Theoretical and Applied Economics,
11, pp. 37-42.

Vol. XIV • No. 32 • June 2012 499

AE An Empirical Study on Key Indicators of Environmental Quality: Green Budgeting -
a Catalyst for Sustainable Economy and a Factor for Institutional Change

Lungu, C. I., Caraiani, C. and Dascălu, C., 2011. Research on corporate social
responsibility reporting. Amfiteatru Economic, XIII(29), pp. 117-131.
Markandya, A. et al., 2009. Public health benefits of strategies to reduce greenhouse-gas
emissions: low-carbon electricity generation. Health and Climate Change, 374(9706),
pp. 2006-2015.
Narayan, P.K. and Narayan, S., 2008. Does environmental quality influence health
expenditures? Empirical evidence from a panel of selected OECD countries. Ecological
Economics, 65(2), pp. 367-374.
Organisation for Economic Cooperation and Development (OECD), 2003. Financing
Strategies for Water and Environmental Infrastructure, (Environmental Finance),
[online] Available at: http://www.ine.gob.mx/descargas/dgipea/fin_strat_env_infra. pdf
[Accessed 10 January 2012].
Ostro, B. and Rothchild, S., 1989. Air pollution and acute respiratory morbidity: an
observational study of multiple pollutants. Environmental Research, 50(2), pp. 238–
247.
Ostro, B., 1987. Air pollution and morbidity revisited: a specification test. Journal of
Environmental Economics and Management, 14 (1), pp. 87–98.
Pearce, D.W. and Turner, R.K., 1991. Economics of Natural Resources and the
Environment. Journal Agricultural Systems, 37(1), pp. 100-101.
Petkova, N., 2009. Integrating Public Environmental Expenditure within Multi-year
Budgetary Frameworks. [online] Available at: < http://www.oecd.org/dataoecd/
28/53/42779747.pdf > [Accessed 10 January 2012].
Petkova, N., Stanek, R. and Bularga, A., 2011. Mediumterm Management of Green Budget:
The Case of Ukraine. [online] Available: <http://www.oecdilibrary.org/docserver/
download/fulltext/5kgg6fwxv4f1.pdf?> [Accesed 10 January 2012].
Primmer, E., 2011. Analysis of institutional adaptation: integration integration of biodiversity
conservation into forestry. Journal of Cleaner Production, 19(16), pp.1822-1832.
Săvoiu, G., Dinu, V. and Tăchiciu, L., 2012. Romania Foreign Trade in Global Recession,
Revealed by the Extended Method of Exchange Rate Indicators. Amfiteatru Economic,
XIV(31), pp. 173-194.
Schiavo-Campo, S., 2008. Of Mountains and Molehills: The ”Medium-Term Expenditure
Framework” [online] Available at: <http://blog-pfm.imf.org /pfmblog /files / MTEF
paper Final.doc> [Accessed 10 January 2012].
Schmidt, G. A., Ruedy, R. A., Miller, R. L., and Lacis A. A., 2010. Attribution of the
present-day total greenhouse effect. Journal of Geophysical Research Atmospheres,
115(D20106), pp. 1-6.
The World Bank, 2011. Indicators. [online] Available at:
<http://data.worldbank.org/indicator/> [Accessed 10 Decemeber 2011].
Zaharia, R.M, Stancu, A., Stoian, C. and Diaconu, M., 2010. Commercial Activity’s
Contribution to Sustainable Development by Social Responsability Actions: a Vision of
SMEs. Amfiteatru Economic, XI(27), pp. 155-167.
Zuidema, T. and Nentjes, A., 1997. Health damage of air pollution: an estimate of a dose-
response relationship for The Netherlands. Environmental and Resource Economics,
9(3), pp. 291–308.

500 Amfiteatru Economic

Reproduced with permission of the copyright owner. Further reproduction prohibited without
permission.