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Functional sensitivity of testing the environmental Kuznets curve hypothesis

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  • Wang, Yi-Chia

Abstract

Conventional tests for the environmental Kuznets curve (EKC) hypothesis mostly apply a quadratic equation in modeling the non-linear relationship between environmental indices (such as air pollutants) and welfare measures (such as income per capita). If their inverted-U shaped pattern is empirically accepted with two significant regressors, the income per capita and its square transformation, the EKC hypothesis is supported. Using an OECD sample, this paper shows that the validity of testing the EKC hypothesis is sensitive to how we transform income non-linearly in sulfur and carbon EKC regressions. This paper carries out experiments on different powers of γ for transforming income non-linearly and concludes that only when 0<γ<1 and 1<γ<2 will the EKC regression demonstrate a testable non-linear cointegration relationship between the two air pollutants and income per capita. In the generalized EKC regressions estimated in this paper, although we find sulfur and carbon EKC patterns in the OECD sample, none of the EKC regressions using different γ is a cointegrating equation. This finding implies an inside critique to the EKC literature that failure of cointegration of the conventional EKC regression is not because of using the quadratic functional form, but because of the fundamentally spurious relationship between the trends of pollutants and income levels.

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  • Wang, Yi-Chia, 2013. "Functional sensitivity of testing the environmental Kuznets curve hypothesis," Resource and Energy Economics, Elsevier, vol. 35(4), pages 451-466.
    • Handle: RePEc:eee:resene:v:35:y:2013:i:4:p:451-466
    DOI: 10.1016/j.reseneeco.2013.01.003
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    12. Liddle, Brantley & Messinis, George, 2015. "Revisiting sulfur Kuznets curves with endogenous breaks modeling: Substantial evidence of inverted-Us/Vs for individual OECD countries," Economic Modelling, Elsevier, vol. 49(C), pages 278-285.
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    15. Yang, Haisheng & He, Jie & Chen, Shaoling, 2015. "The fragility of the Environmental Kuznets Curve: Revisiting the hypothesis with Chinese data via an “Extreme Bound Analysis”," Ecological Economics, Elsevier, vol. 109(C), pages 41-58.
    16. Ali, Syed Ahtsham & Alharthi, Majed & Hussain, Hafezali Iqbal & Rasul, Farhat & Hanif, Imran & Haider, Jahanzaib & Ullah, Saad & ur Rahman, Saeed & Abbas, Qaiser, 2021. "A clean technological innovation and eco-efficiency enhancement: A multi-index assessment of sustainable economic and environmental management," Technological Forecasting and Social Change, Elsevier, vol. 166(C).
    17. Silajdzic Sabina & Mehic Eldin, 2018. "Do Environmental Taxes Pay Off? The Impact of Energy and Transport Taxes on CO2 Emissions in Transition Economies," South East European Journal of Economics and Business, Sciendo, vol. 13(2), pages 126-143, December.
    18. Özbuğday, Fatih Cemil & Erbas, Bahar Celikkol, 2015. "How effective are energy efficiency and renewable energy in curbing CO2 emissions in the long run? A heterogeneous panel data analysis," Energy, Elsevier, vol. 82(C), pages 734-745.
    19. Fujii, Hidemichi & Managi, Shunsuke, 2015. "Economic development and multiple air pollutant emissions from the industrial sector," MPRA Paper 67027, University Library of Munich, Germany.
    20. Wiesmeth, Hans & Weber, Shlomo, 2015. "Awareness of Climate Change in a Diverse World," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113024, Verein für Socialpolitik / German Economic Association.
    21. Marie-Sophie Hervieux & Pierre-Alexandre Mahieu, 2014. "A detailed systematic review of the recent literature on environmental Kuznets curve dealing with CO2," Working Papers hal-01010243, HAL.

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    More about this item

    Keywords

    Environmental Kuznets curve; EKC; Non-linear regression;
    All these keywords.

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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