Evidence from Panel Unit Root and Cointegration Tests that the Environmental Kuznets Curve does not Exist

By Roger Perman, David I. Stern. 2003

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The Environmental Kuznets Curve (EKC) hypothesis - an inverted U-shape relation between various indicators of environmental degradation and income per capita - has become one of the 'stylised facts' of environmental and resource economics. This is despite considerable criticism on both theoretical and empirical grounds. Cointegration analysis can be used to test the validity of such stylised facts when the data involved contain stochastic trends. In the present paper, we use cointegration analysis to test the EKC hypothesis using a panel dataset of sulfur emissions and GDP data for 74 countries over a span of 31 years. We find that the data is stochastically trending in the time-series dimension. Given this, and interpreting the EKC as a long run equilibrium relationship, support for the hypothesis requires that an appropriate model cointegrates and that sulfur emissions are a concave function of income. Individual and panel cointegration tests cast doubt on the general applicability of the hypothesised relationship. Even when we find cointegration, many of the relationships for individual countries are not concave. The results show that the EKC is a problematic concept, at least in the case of sulfur emissions. Copyright Australian Agricultural and Resource Economics Society Inc. and Blackwell Publishing Ltd 2003.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/db1b3202267e73272194579c4e6991838953fa85

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Citations in the corpus

The Environmental Kuznets Curve (2017, unknown): “When we do take such statistics into account and use appropriate techniques we find that the EKC does not exist (Perman and Stern 2003).”
Taking the "U" out of Kuznets: a comprehensive analysis of the EKC and environmental degradation. (2009, background): “Several shortcomings along with inconsistencies in theoretical modeling have lead to strong criticisms of the EKC (Müller-Fürstenberger and Wagnerb, 2007; Perman and Stern, 2003).”
The Carbon Kuznets Curve: A Cloudy Picture Emitted by Bad Econometrics? (2008, methodology): “Two main approaches are followed in all the tests, either a non-parametric correction in the spirit of Phillips and Perron (1988) or in the spirit of the augmented Dickey Fuller (ADF) principle.”
Beyond the Environmental Kuznets Curve in Africa: Evidence from Panel Cointegration (2014, methodology): “This finding supports the stance of Beckerman (1992) and Perman and Stern (2003) that at the early stages of economic development, there is bound to be environmental degradation.”
Energy Prices and Turning Points: The Relationship between Income and Energy Use/Carbon Emissions (2006, methodology): “This consistency is undermined by recent analyses that use more sophisticated econometric techniques (e.g. Richmond and Kaufmann, 2006; Perman and Stern, 2003) and/or expand the variables in the model (e.g. Kaufmann et al. 1998).”