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Exploring the Environmental Kuznets Hypothesis. Theoretical and Econometric Problems

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Author Info
Müller-Fürstenberger, Georg (Department of Economics, University of Bern)
Wagner, Martin (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria)

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Abstract

Focussing on the prime example of CO2 emissions, we discuss several important theoretical and econometric problems that arise when studying environmental Kuznets curves (EKCs). The dominant theoretical approach is given by integrated assessment modelling, which consists of economic models that are combined with environmental impact models. We critically evaluate the aggregation, model dynamics and calibration aspects and their implications for the validity of the results. We then turn to a discussion of several important econometric problems that go almost unnoticed in the literature. The most fundamental problems relate to nonlinear transformations of nonstationary regressors and, in a nonstationary panel context, to neglected cross–sectional dependence. We discuss the implications of these two major and some minor problems that arise in the econometric analysis of Kuznets curves. Our discussion shows that EKC modelling as performed to date is subject to major drawbacks at both the theoretical and the econometric level.

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File URL: http://www.ihs.ac.at/publications/eco/es-183.pdf
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Publisher Info
Paper provided by Institute for Advanced Studies in its series Economics Series with number 183.

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Length: 32 pages
Date of creation: Jan 2006
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Handle: RePEc:ihs:ihsesp:183

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Related research
Keywords: Carbon Kuznets curve; Integrated assessment models; Regressions with integrated variables; Nonstationary panels;

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Find related papers by JEL classification:
Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation

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References listed on IDEAS
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    Other versions:
  2. Park, Joon Y & Phillips, Peter C B, 2001. "Nonlinear Regressions with Integrated Time Series," Econometrica, Econometric Society, vol. 69(1), pages 117-61, January.
    Other versions:
  3. Elbert Dijkgraaf & Herman Vollebergh, 2004. "A Note on Testing for Environmental Kuznets Curves with Panel Data," Others 0409001, EconWPA. [Downloadable!]
  4. William A. Brock & M. Scott Taylor, 2004. "Economic Growth and the Environment: A Review of Theory and Empirics," NBER Working Papers 10854, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. 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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  6. 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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  7. 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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  8. Selden Thomas M. & Song Daqing, 1994. "Environmental Quality and Development: Is There a Kuznets Curve for Air Pollution Emissions?," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 147-162, September. [Downloadable!] (restricted)
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  10. David F. Bradford & Rebecca A. Fender & Stephen H. Shore & Martin Wagner, 2005. "The Environmental Kuznets Curve: Exploring a Fresh Specification," The B.E. Journal of Economic Analysis & Policy, Berkeley Electronic Press, vol. 0(1). [Downloadable!]
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  13. Martin Wagner & Georg Müller-Fürstenberger, 2004. "The Carbon Kuznets Curve: A Cloudy Picture Emitted by Bad Econometrics?," Diskussionsschriften dp0418, Universitaet Bern, Departement Volkswirtschaft. [Downloadable!]
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  14. Park, Joon Y. & Phillips, Peter C.B., 1999. "Asymptotics For Nonlinear Transformations Of Integrated Time Series," Econometric Theory, Cambridge University Press, vol. 15(03), pages 269-298, June. [Downloadable!]
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  15. Minh Ha-Duong & Patrice Dumas, 2004. "An abrupt stochastic damage function to analyse climate policy benefits," Post-Print halshs-00002451_v1, HAL. [Downloadable!]
  16. Jaroslava Hlouskova & Martin Wagner, 2005. "The Performance of Panel Unit Root and Stationarity Tests: Results from a Large Scale Simulation Study," Diskussionsschriften dp0503, Universitaet Bern, Departement Volkswirtschaft. [Downloadable!]
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  17. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May. [Downloadable!] (restricted)
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  18. Friedl, Birgit & Getzner, Michael, 2003. "Determinants of CO2 emissions in a small open economy," Ecological Economics, Elsevier, vol. 45(1), pages 133-148, April. [Downloadable!] (restricted)
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  21. 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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  23. 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)
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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. Wagner, Martin, 2006. "The Carbon Kuznets Curve. A Cloudy Picture Emitted by Bad Econometrics?," Economics Series 197, Institute for Advanced Studies. [Downloadable!]
    Other versions:
  2. Nektarios Aslanidis, 2009. "Environmental Kuznets Curves for Carbon Emissions: A Critical Survey," Working Papers 2009.75, Fondazione Eni Enrico Mattei. [Downloadable!]
  3. Aslanidis Nektarios, 2009. "Environmental Kuznets curves for carbon emissions: A critical survey," wp.comunite 0051, Department of Communication, University of Teramo. [Downloadable!]
  4. Annicchiarico, Barbara & Bennato, Anna Rita & Costa, Andrea, 2009. "Economic Growth and Carbon Dioxide Emissions in Italy, 1861-2003," MPRA Paper 12817, University Library of Munich, Germany. [Downloadable!]
  5. 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!]
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