Does the environmental Kuznets curve hold across sectors? Evidence from developing and emerging economies

This work presents a sector-level study exploring the growth–energy–pollution nexus within the framework of the environmental Kuznets curve (EKC). The combined contribution to CO2 emissions from various sectors of the economy is examined for a group of 43 emerging and developing countries. Since energy consumption and contribution to GDP vary significantly across sectors, each sector is likely to exhibit a different response to pollution driven by macroeconomic factors. An index decomposition approach is adopted to disentangle the effect of energy consumption from intra-sectoral shifts in economic activities. This is important because it allows for the evaluation of improvements in energy efficiency across sectors. For the empirical analysis, system and difference-GMM estimators are employed using longitudinal data from 1998 to 2019. The econometric results reveal substantial heterogeneity in responses to CO2 reduction across sectors. Particularly, the EKC hypothesis is validated for energy-related measures for the sole manufacturing sector, and for GDP for the commercial and public sector. Simultaneously, while emissions increase proportionately with growth in the transportation sector, energy efficiency measures seem to be ineffective in curtailing emissions in both the transportation and commercial and public sectors. These results offer recommendations for the development of effective carbon neutrality policies.