Revisiting environmental kuznets curve for carbon dioxide emissions: The role of trade

Abstract

In the three decades since the environmental Kuznets curve (EKC) hypothesis was proposed, there have been a massive amount of empirical studies on the relationship between per capita income and carbon dioxide (CO2) emissions based on the production accounting approach. International trade has played a critical role in effectively and efficiently allocating resources in the process of economic globalization. Through international trade, part of the responsibilities for CO2 emission mitigation which should have been taken by consumers have been transferred to the producers of traded goods and resources. The focus of this research is on the re-examination of the EKC hypothesis, taking the role of international trade into account. The findings are as follows. In the first stage, we calculated the CO2 emissions of 39 countries using the input-output analysis approach based on production accounting and consumption accounting. Currently, China is the largest CO2 emitter, surpassing the U.S. However, the per capita CO2 emissions of China lag behind those of the U.S. In the second stage, although both an inverted U-shaped curve and an N-shaped curve were obtained, the cubic functional form model is better fitted. In addition, the turning point occurs earlier if adopting the production-based accounting rather than adopting the consumption-based accounting, implying that international trade postpones the peak time of global CO2 emissions. From the above analysis, it follows that when testing for the validity of the EKC for global CO2 emissions, the role of trade cannot be overstated.