Pollution as one of the determinants of income in Malaysia: Comparison between single and simultaneous equation estimators of an EKC

Abstract

This study aims to examine the relationship between economic growth and different indicators of air and water pollution in Malaysia. Air pollution indicators were assessed on a number of measures: carbon monoxide, sulphur dioxide (SO), nitrogen dioxide, ozone and particulate matter (PM) while water pollution indicators were evaluating on a number of measures: biochemical oxygen demand, cadmium and arsenic. The income level per capita gross domestic product per capita were measured from the year 1996 to 2006 quarterly. Being different from the study by Hung and Shaw (2004) and Shen (2006), this study estimates population density as an endogenous variable. It formulates a fourequation simultaneous model for empirical research. Testes for exogeneity with the Hausman test and estimates the simultaneity model using the two‐stages least squares method. The Environmental Kuznets Curve (EKC) hypothesis is supported in the cases of SO and PM, and there are several differences found between single polynomial equation estimators commonly used in EKC literatures and simultaneous equation estimators.