On the Robustness of Robustness Checks of the Environmental Kuznets Curve

Abstract:     
Since its first inception in the debate on the relationship between environment and growth in 1992, the Environmental Kuznets Curve has been subject to continuous and intense scrutiny. The literature can be roughly divided in two historical phases. Initially, after the seminal contributions, additional work aimed to extend the investigation to new pollutants and to verify the existence of an inverted-U shape as well as assessing the value of the turning point. The following phase focused instead on the robustness of the empirical relationship, particularly with respect to the omission of relevant explanatory variables other than GDP, alternative datasets, functional forms, and grouping of the countries examined. The most recent line of investigation criticizes the Environmental Kuznets Curve on more fundamental grounds, in that it stresses the lack of sufficient statistical testing of the empirical relationship and questions the very existence of the notion of Environmental Kuznets Curve. Attention is drawn in particular on the stationarity properties of the series involved - per capita emissions or concentrations and per capita GDP - and, in case of unit roots, on the cointegration property that must be present for the Environmental Kuznets Curve to be a well-defined concept. Only at that point can the researcher ask whether the long-run relationship exhibits an inverted-U pattern. On the basis of panel integration and cointegration tests for sulphur, Stern (2002, 2003) and Perman and Stern (1999, 2003) have presented evidence and forcefully stated that the Environmental Kuznets Curve does not exist. In this paper we ask whether similar strong conclusions can be arrived at when carrying out tests of fractional panel integration and cointegration. As an example we use the controversial case of carbon dioxide emissions. The results show that more EKCs come back into life relative to traditional integration/cointegration tests. However, we confirm that the EKC remains a fragile concept.

Number of Pages in PDF File: 37

Keywords: Environment, Growth, CO2 Emissions, Panel data, Fractional integration, Panel cointegration tests

JEL Classification: O13, Q30, Q32, C12, C23

working papers series