CO2 Kuznets Curve Revisited: From Cross-Sections to Panel Data Models

The Environmental Kuznets Curve (EKC) predicts that environmental degradation intensifies when per capita income increases and subsequently subsides after a certain income level is reached, resulting in an inverted U-shaped relationship. There is abundant literature on the topic that corroborates the existence of a positive income elasticity for environmental quality. However, results are controversial. We take the case of CO2, by comparing the results of the cross-sectional estimates with those derived from a panel approach. To this end, we use data from 182 countries during the period 1992-2011. We found that the EKC hypothesis is acceptable under both approaches, although the estimated turning points in cross-sections seem unreliable. Our application underlines the importance of adequately address central problems such as heterogeneity, structural breaks and spatial interaction.