Dynamic Relationship Between Carbon Dioxide Emissions and Gross Domestic Product for Low, Middle- and High-Income Countries

This study meticulously examines the intricate relationships between Carbon Dioxide CO2 emissions and key economic indicators across different income strata of 83 countries over 1995–2020 period. We employ panel unit root tests, panel cointegration tests, Fully Modified Least Squares (FMOLS), Arellano-Bond dynamic panel-data estimation models, and panel threshold analysis to discern the underlying dynamics. Our findings reveal a heterogeneous impact of economic indicators on CO2 emissions across different income groups, thereby affirming the inconclusive nature of the Environmental Kuznets Curve (EKC) hypothesis across income brackets. Specifically, the real GDP per capita associated with the EKC turning point closely aligns with existing literature, yet the impact of the square of per-capita GDP is observed to be income group-specific. While the EKC hypothesis is observed to be applicable to middle and high-income countries, it is found to be inapplicable to low-income countries. Additionally, the results indicate significant variations in the relationships between CO2 emissions and other economic variables, such as population growth, trade openness, and livestock production, across different income levels. This underscores the necessity for tailored policy approaches that account for the unique environmental and economic dynamics encountered by each income group. Our study contributes to the existing literature by providing a comprehensive and nuanced understanding of the relationships between CO2 emissions and economic development indicators across diverse economic contexts, thereby highlighting the importance of customized strategies in addressing the multifaceted challenges posed by climate change. A one-size-fits-all strategy may not be effective in addressing the challenges posed by climate change across diverse economic contexts.