Testing the environmental Kuznets curve for G7 countries: evidence from a bootstrap panel causality test in rolling windows.

Abstract

The Environmental Kuznets Curve hypothesis is a theoretical proposition explicating the link between a locality's income level and environmental degradation. Previous studies estimated the current relationship with an unchanging parameter. However, due to changes in global conomic and political conditions, natural disasters, technological shocks, and implemented policies, the link between income and environmental degradation is about to change. The study investigates the income-pollution nexus for G7 countries-Canada, France, Germany, Italy, Japan, the UK, and the USA-from 1970 to 2014 using a novel methodology: bootstrap panel rolling window causality. In this context, this approach is advantageous for determining the link between income and pollution level in sub-sample periods, rather than assuming an unchanging parameter, and captures the hidden causal linkages between income and environmental pollution. The results confirm the validity of the EKC hypothesis in Japan and the USA, whereas in the other countries, the relationship between EF and GDP exhibits no evidence for an inverted U-shaped pattern.