The Environmental Kuznets Curve: Implications of Non-stationarity

In this paper, we apply time series techniques for panel data to the environmental Kuznets curve (EKC) model. Within the literature that estimates emissions-income relations in the EKC context, little attention has been paid to the time series properties of the data and in particular to whether the variables could be integrated time series. We estimate the EKC for sulphur emissions using a panel data set for 74 countries over 30 years. Using individual unit root tests, we find that both sulphur emissions and GDP per capita are integrated variables in the majority of countries. This result is confirmed by panel unit root tests that find that the panel series are integrated. Individual cointegration tests show that EKC relations in most countries do not cointegrate. Results of a number of panel cointegration statistics are mixed. Even if there is cointegration in the panel many of the individual EKC functions are U shaped or monotonic in income. There is no single cointegrating vector common to all countries. The results show that the EKC may be a problematic concept, as simple global EKC models are misspecified.