On the robustness of robustness checks of the Environmental Kuznets Curve

Authors: Galeotti M., Manera M., Lanza A.

Journal: Environmental and Resource Economics

Publisher: Elsevier

Year: 2009

Volume: 42

Pages: 551-574

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

JEL: O13, Q30, Q32, C12, C23

DOI: http://dx.doi.org/10.1007/s10640-008-9224-x

 

Abstract

Since its first inception in the debate on the relationship between environment and growth in 1992, the Environmental Kuznets Curve hypothesis (EKC hereafter) has been subject of continuous and intense scrutiny. The most recent line of investigation criticizes the EKC hypothesis 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 EKC. Attention is in particular drawn on the stationarity properties of the series involved—per capita emissions or concentrations and per capita GDP—and, in case of presence of unit roots, on the cointegration property that must be present for the EKC 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 sulfur, Stern (2004) and Perman and Stern (1999, 2003) have presented evidence and forcefully stated that the EKC hypothesis does not exist. In this paper we ask whether similar strong conclusions can be arrived at when carrying out tests of system fractional 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 hypothesis remains a fragile concept.