Cointegration with multiple structural breaks: an application to the Spanish environmental Kuznets curve, 1857-2007

In this paper we consider the possibility that a linear cointegrated regression model with multiples structural changes would provide a better empirical description of the Spanish environmental Kuznets curve during the period 1857-2007. Our methodology is based on instability tests recently proposed in Kejriwal and Perron (2008, 2010) as well as the cointegration test in Arai and Kurozumi (2007) and Kejriwal (2008) developed to allow for a single or multiple breaks under the null hypothesis of cointegration, respectively. Overall, the results of the Kejriwal-Perron tests suggest a model with two breaks estimated at 1941 and 1967 and three regimes. The coefficient estimated between per capita CO2 and per-capita income (or long-run elasticity) in a two breaks model show a tendency to decrease over time. This implies that even if per capita CO2 consumption is monotonically rising in income, the "income elasticity" is less than one.