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The carbon Kuznets curve: A cloudy picture emitted by bad econometrics?

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Wagner, Martin

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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 CO2 (and SO2) 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.

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Publisher Info
Article provided by Elsevier in its journal Resource and Energy Economics.

Volume (Year): 30 (2008)
Issue (Month): 3 (August)
Pages: 388-408
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Handle: RePEc:eee:resene:v:30:y:2008:i:3:p:388-408

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Web page: http://www.elsevier.com/locate/inca/505569

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Wagner, Martin & Hlouskova, Jaroslava, 2007. "The Performance of Panel Cointegration Methods. Results from a Large Scale Simulation Study," Economics Series 210, Institute for Advanced Studies. [Downloadable!]
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  5. Yoosoon Chang & Joon Y. Park & Peter C.B. Phillips, 1999. "Nonlinear Econometric Models with Cointegrated and Deterministically Trending Regressors," Cowles Foundation Discussion Papers 1245, Cowles Foundation, Yale University. [Downloadable!]
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  6. Jushan Bai & Serena Ng, 2004. "A PANIC Attack on Unit Roots and Cointegration," Econometrica, Econometric Society, vol. 72(4), pages 1127-1177, 07. [Downloadable!] (restricted)
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  7. Pesaran, M.H., 2003. "A Simple Panel Unit Root Test in the Presence of Cross Section Dependence," Cambridge Working Papers in Economics 0346, Faculty of Economics, University of Cambridge. [Downloadable!]
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  8. Park, Joon Y & Phillips, Peter C B, 2001. "Nonlinear Regressions with Integrated Time Series," Econometrica, Econometric Society, vol. 69(1), pages 117-61, January.
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  9. MOON, Hyungsik Roger & PERRON, Benoit., 2002. "Testing for a Unit Root in Panels with Dynamic Factors," Cahiers de recherche 2002-18, Universite de Montreal, Departement de sciences economiques. [Downloadable!]
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  10. Elbert Dijkgraaf & Herman Vollebergh, 2004. "A Note on Testing for Environmental Kuznets Curves with Panel Data," Others 0409001, EconWPA. [Downloadable!]
  11. BERTINELLI, Luisito & STROBL, Eric, 2004. "The Environmental Kuznets Curve semi-parametrically revisited," CORE Discussion Papers 2004051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
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  12. Gene M. Grossman & Alan B. Krueger, 1994. "Economic Growth and the Environment," NBER Working Papers 4634, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Douglas Holtz-Eakin & Thomas M. Selden, 1992. "Stoking the Fires? Co2 Emissions and Economic Growth," NBER Working Papers 4248, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. David Bradford & Rebecca Fender & Stephen Shore & Martin Wagner, 2005. "The Environmental Kuznets Curve: Exploring a Fresh Specification," Contributions to Economic Analysis & Policy, Berkeley Electronic Press, vol. 4(1), pages 1073-1073. [Downloadable!] (restricted)
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  15. Phillips, P.C.B., 1986. "Understanding spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 33(3), pages 311-340, December. [Downloadable!] (restricted)
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  16. Phillips, Peter C B & Ouliaris, S, 1990. "Asymptotic Properties of Residual Based Tests for Cointegration," Econometrica, Econometric Society, vol. 58(1), pages 165-93, January. [Downloadable!] (restricted)
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  17. Chang, Yoosoon, 2002. "Nonlinear IV unit root tests in panels with cross-sectional dependency," Journal of Econometrics, Elsevier, vol. 110(2), pages 261-292, October. [Downloadable!] (restricted)
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  18. Peter C.B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Cowles Foundation Discussion Papers 1222, Cowles Foundation, Yale University. [Downloadable!]
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  19. Warwick J. McKibbin & Martin T. Ross & Robert Shackleton & Peter J. Wilcoxen, 1999. "Emissions Trading, Capital Flows and the Kyoto Protocol," Economics and Environment Network Working Papers 9901, Australian National University, Economics and Environment Network. [Downloadable!]
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  20. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April. [Downloadable!] (restricted)
  21. Harris, R. & Tzavalis, E., 1996. "Inference for Unit Roots in Dynamic Panels," Discussion Papers 96/04, University of Exeter, School of Business and Economics.
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  26. Daniel L. Millimet & John A. List & Thanasis Stengos, 2003. "The Environmental Kuznets Curve: Real Progress or Misspecified Models?," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1038-1047, 09. [Downloadable!] (restricted)
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  27. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May. [Downloadable!] (restricted)
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  29. Paparoditis, Efstathios & Politis, Dimitris N., 2005. "Bootstrapping Unit Root Tests for Autoregressive Time Series," Journal of the American Statistical Association, American Statistical Association, vol. 100, pages 545-553, June. [Downloadable!] (restricted)
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  32. Harris, Richard D. F. & Tzavalis, Elias, 1999. "Inference for unit roots in dynamic panels where the time dimension is fixed," Journal of Econometrics, Elsevier, vol. 91(2), pages 201-226, August. [Downloadable!] (restricted)
  33. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July. [Downloadable!] (restricted)
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  34. Peter C.B. Phillips & Bruce E. Hansen, 1988. "Statistical Inference in Instrumental Variables," Cowles Foundation Discussion Papers 869R, Cowles Foundation, Yale University, revised Apr 1989. [Downloadable!]
  35. Efstathios Paparoditis & Dimitris N. Politis, 2003. "Residual-Based Block Bootstrap for Unit Root Testing," Econometrica, Econometric Society, vol. 71(3), pages 813-855, 05. [Downloadable!] (restricted)
  36. Jaroslava Hlouskova & Martin Wagner, 2005. "The Performance of Panel Unit Root and Stationarity Tests: Results from a Large Scale Simulation Study," Economics Working Papers ECO2005/05, European University Institute. [Downloadable!]
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  37. Manne, Alan & Mendelsohn, Robert & Richels, Richard, 1995. "MERGE : A model for evaluating regional and global effects of GHG reduction policies," Energy Policy, Elsevier, vol. 23(1), pages 17-34, January. [Downloadable!] (restricted)
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    Other versions:
  39. Muller-Furstenberger, Georg & Wagner, Martin, 2007. "Exploring the environmental Kuznets hypothesis: Theoretical and econometric problems," Ecological Economics, Elsevier, vol. 62(3-4), pages 648-660, May. [Downloadable!] (restricted)
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  40. Nelson C. Mark & Donggyu Sul, 2003. "Cointegration Vector Estimation by Panel DOLS and Long-run Money Demand," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(5), pages 655-680, December. [Downloadable!] (restricted)
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  41. Heil, Mark T & Selden, Thomas M, 1999. "Panel Stationarity with Structural Breaks: Carbon Emissions and GDP," Applied Economics Letters, Taylor and Francis Journals, vol. 6(4), pages 223-25, April. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bagliani Marco & Bravo Giancarlo & Dalmazzone Silvana & Giaccaria Sergio & Golia Silvia, 2008. "Economic growth and environmental pressure: a worldwide panel analysis," Department of Economics Working Papers 200812, University of Turin. [Downloadable!]
  2. Yongfu Huang & Terry Barker, 2008. "The Clean Development Mechanism and Sustainable Development: A Panel Data Analysis," Environmental Economy and Policy Research Working Papers 39.2008, University of Cambridge, Department of Land Economics, revised 2008. [Downloadable!]
  3. Müller-Fürstenberger, Georg & Wagner, Martin, 2006. "Exploring the Environmental Kuznets Hypothesis. Theoretical and Econometric Problems," Economics Series 183, Institute for Advanced Studies. [Downloadable!]
    Other versions:
  4. Georg Muller-Furstenberger & Martin Wagner & Benito Muller, 2005. "Exploring the Carbon Kuznets Hypothesis," Others 0506009, EconWPA. [Downloadable!]
  5. Marzio Galeotti & Matteo Manera & Alessandro Lanza, 2009. "On the Robustness of Robustness Checks of the Environmental Kuznets Curve Hypothesis," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 42(4), pages 551-574, April. [Downloadable!] (restricted)
  6. Gengenbach,Christian & Palm,Franz C. & Urbain,Jean-Pierre, 2005. "Panel Cointegration Testing in the Presence of Common Factors," Research Memoranda 050, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  7. Nektarios Aslanidis, 2009. "Environmental Kuznets Curves for Carbon Emissions: A Critical Survey," Working Papers 2009.75, Fondazione Eni Enrico Mattei. [Downloadable!]
  8. Andrade, André Luiz, 2009. "CO2 e crescimento econômico: uma análise para as emissões dos combustíveis líquidos de origem fóssil no Brasil
    [CO2 and economic growth: An analysis for emissions from burning fossil fuels in    ," MPRA Paper 15313, University Library of Munich, Germany. [Downloadable!]
  9. Valeria Costantini & Chiara Martini, 2006. "A Modified Environmental Kuznets Curve for Sustainable Development Assessment Using Panel Data," Working Papers 2006.148, Fondazione Eni Enrico Mattei. [Downloadable!]
  10. Marzio Galeotti & Matteo Manera & Alessandro Lanza, 2006. "On the Robustness of Robustness Checks of the Environmental Kuznets Curve," Working Papers 2006.22, Fondazione Eni Enrico Mattei. [Downloadable!]
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