In Search of a Sulphur Dioxide Environmental Kuznets Curve: A Bayesian Model Averaging Approach

Abstract

The exact specification and motivation of the Environmental Kuznets Curve (EKC) is the subject of a vast literature in environmental economics. A remarkably diverse set of econometric approaches has been employed to support or reject a specific relationship between environmental quality and pollution. Nevertheless, methods employed to date have not addressed the issue of model uncertainty, given that a sizable number of competing theories exist that can explain the income/pollution relationship. We introduce Bayesian Model Averaging to the EKC analysis to examine a) whether a sulphur dioxide EKC exists, and if so, b) which income/pollution specification is most strongly supported by the data. We find only weak support for an EKC, which disappears altogether when we address oversampling issues in the data. In contrast, our results highlight the relative importance of political economy and site-specific variables in explaining pollution outcomes. Trade is also shown to play an important indirect role. It moderates the influence of the composition effect on pollution. Our findings run contrary to the deterministic view of the income/pollution relationship that is persistent in the literature.