Environmental Kuznets curve in the presence of structural breaks: new evidence for individual European Countries.

Abstract

This study explores the relationships between carbon emissions and their main determinants such as energy consumption, real income and international trade, in 15 European countries, employing data for the period 1960-2015, and in Germany, for that of 1970-2015. The purpose of this paper is to examine the environmental Kuznets curve in subregimes in the presence of structural shifts. Two complementary unit root tests are employed to examine the stationarity of employed variables. The Ng and Perron Econometrica 69: 1519-1554 (2001) and the Zivot and Andrews J Bus Econ Stat, 10(3), 251-270 (1992) unit root tests, both allow for a structural break. To estimate the parameters of the regression model and to detect structural breaks in the model, the Kejriwal and Perron J Econ, 146(1), 59-73, (2008), J Bus Econ Stat, 28(4), 503-522, (2010a), J Time Ser Anal, 31, 305-328, (2010b)) structural break test is employed. When structural breaks are allowed in estimations, the empirical results provide strong evidence of fluctuating relationships between CO2 emissions and income expressed by the U-shape in every subregime, which contradicts early findings in the literature of inverse U-shape environmental Kuznets curve.