Reexamination of Environmental Kuznets Curve for Ecological Footprint: The Role of Biocapacity, Human Capital, and Trade

Abstract

Climate change has emerged as a global challenge because of its threat to sustainable development goals. Economic development is responsible for climate change as well as it is complementary to sustainability. Hence, environmental Kuznets curve (EKC) hypothesis is central to the development plans and formulation of climate change policy. However, the evidence on EKC is largely conflicting because it is provided using narrow measures of environment, small samples, short time duration and ignoring updated estimation methods. This study re-investigates the EKC by exploiting the lager panel data set, covering a longer time horizon more than half century (1961-2018) and using ecological footprint as a comprehensive environmental indicator and employing first-generation and second-generation panel time’s series methods. The study sample comprises 20 upper-income countries (UICs), 36 middle-income countries (MICs) and 20 low-income countries (LICs). The results conclude the presence of cross-sectional dependence, unit root at level and long run relationship among the variables allowing for long run estimates. The findings of different estimators validate an inverted U-shaped EKC for UICs while U-shaped EKC for MICs and LICs, respectively. The results of fixed effects quantile (FEQ) estimates suggest that the scale and technique effects depend upon the existing levels of EFP within and across different groups of countries according to development level and regional location. Moreover, the role of bio-capacity, human capital, and trade is conducive in managing global EFP. The findings imply that global environmental policies need to be aligned with the heterogeneity of different groups of countries.