Econonomics of Energy and Environmental Policy

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Beyond the inverted U-shape: Challenging the long-term relationship of the Environmental Kuznets Curve hypothesis

This paper empirically tests the validity of the postulated Environmental Kuznets Curve for a panel of 69 countries from 1971 to 2014 which are clustered into all-, high-, middle-, and lower-income groupings. Since the quadratic EKC specification between carbon dioxide emissions and GDP produces highly biased results in favour of an inverted U-shaped pattern, we adopt a cubic formulation and estimate the long-term coefficients signs and significance accounting for country specific slope heterogeneity. Our empirical results rather support a N-shaped than an inverted U-shaped pattern for the pollution income relationship particularly in the all-income panel. We find no evidence of an inverted U-shaped pattern associated with the EKC hypothesis in any panel. Our analysis indicates that promoting economic growth is not a panacea to simply grow out of pollution related problems in the long-term.
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Keywords: Environmental Kuznets Curve, carbon dioxide emissions, energy consumption, economic growth, trade-openness, nonstationary panel data methods

DOI: 10.5547/2160-5890.9.1.lsor

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Published in Volume 9, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.


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