Testing the Environmental Kuznets Curve hypothesis: A comparative empirical study for low, lower middle, upper middle and high income countries

Abstract

The basic objective of this study is to empirically estimate the Environmental Kuznets Curve (EKC) hypothesis for four countries from low income, lower middle income, upper middle income and high income countries namely Tanzania, Guatemala, China and the USA, respectively. For the empirical investigation an econometric model consists of Carbon Dioxide (CO2) emissions used a proxy for environmental degradation as a response variable, while, income, income square, energy consumption, urbanization growth rate, and trade openness are as regressors. Annual time series data covering the time period 1975–2014 are used for the empirical investigation. Results of Johansen co-integration test indicate that there exists one co-integrating relationship among the variables in the case of the USA and China, while in the case of Tanzania and Guatemala, there exist two co-integrating linkages. Similarly, the Pearson correlation result among the five variables shows that energy consumption has a significant positive relationship with trade openness and CO2 emissions in Tanzania, the USA, Guatemala and China, whereas, a significant negative relationship with economic growth in all these countries has been observed. The empirical results also reveal that in the case of Tanzania and China, trade openness has a significant positive relationship with environmental degradation, while in case of the USA and Guatemala, the correlation with urbanization growth rate is found significant with a negative sign. The ordinary least square result supports an EKC hypothesis for low and lower middle income countries. However, the study fails to find any support for the validity of an EKC hypothesis for upper middle income and high income countries during the period under the study.