Determinants of the ecological footprint in the EU-27: A factor-augmented approach

This paper analyzes the macroeconomic determinants of the Ecological Footprint (EF) per capita in the EU-27 over the period 1970–2019. We propose a factor-augmented regression framework based on a high-dimensional dataset of 104 macroeconomic indicators to capture the latent structure underlying EF dynamics. Common factors are extracted using non-supervised methods (Principal Components) and supervised methods (Partial Least Squares). The results identify two latent macroeconomic forces associated with EF: aggregate economic activity and international trade. The estimated relationships are stable over time and indicate that the association between ecological pressure, business-cycle fluctuations, and trade patterns constitutes a persistent feature of the European economy. The supervised PLS factors account for approximately 84.5% of the in-sample variation in EF, compared with approximately 68% for the non-supervised PC factors. From a policy perspective, the findings suggest that strategies aimed at reducing ecological pressure may benefit from considering broader macroeconomic and trade dynamics alongside efficiency improvements and sector-specific measures.