Abstract
We discuss several major econometric problems that have been ignored in the empirical environmental Kuznets curve (EKC) literature thus far. These are: First, the use of nonlinear transformations of integrated regressors and second, in a panel context, cross-sectional dependence in the data. Both problems fundamentally invalidate the use of widely applied time series and panel unit root and cointegration techniques. We use the important special case of the relationship between GDP and CO 2 (and SO 2) emissions to show and discuss in detail that the seemingly strong evidence for an inverted U-shaped relationship between these variables obtained with commonly used methods is entirely spurious and vanishes when resorting to estimation strategies that take the discussed problems into account.
Highlights
Apart from nuclear energy, hydrocarbon deposits like petroleum, coal and natural gas are currently the only available large scale primary energy sources
To illustrate the points raised in the discussion, we present computations for a panel data set for the Carbon Kuznets Curve comprising 107 countries over the period 1986–1998
In our specification of a parametric Carbon Kuznets Curve (CKC) we focus on the logarithms of both per capita GDP, denoted by yit, and per capita CO2 emissions, denoted by eit
Summary
Apart from nuclear energy, hydrocarbon deposits like petroleum, coal and natural gas are currently the only available large scale primary energy sources. Related to the above, standard panel cointegration estimation results of the CKC differ widely across methods These findings cast serious doubt on the results reported so far in the literature – even when ignoring the two main first level problems (nonlinear transformations, cross-sectional correlations). We include this type of discussion to show that, even when ignoring the first level problems and staying within the standard framework applied up to now, the empirical (panel and time series) EKC literature is an area where best econometric practice is not generally observed. In Appendix A we describe the data and their sources and in Appendix B we briefly describe the implemented bootstrap procedures
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