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Exploring the Carbon Kuznets Hypothesis

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Author Info

  • Georg Muller-Furstenberger

    (University of Bern)

  • Martin Wagner

    (University of Bern)

  • Benito Muller

    (Oxford Institute for Energy Studies)

Abstract

The Carbon Kuznets hypothesis conjectures an inverse U{shape relation between GDP and carbon dioxide emissions. We investigate a number of empirical problems with this hypothesis by way of both econometric analysis and CGE modelling. The econometric analysis takes into account the possibility of unit root non{stationary regressors. On a panel of 107 countries covering the years from 1986 to 1998 we ¯nd evidence for unit root non{stationarity in log GDP and log emissions. Our discussion therefore focusses of potential pitfalls in estimating the Carbon Kuznets curve in the context of non{stationary panels context. We conclude that current practice in the literature fails to take these potential problems adequately into account. The second conceptual problem considered in the paper is the question of how to inter- pret an observed inverse U{shaped relationship. With the help of a small GCE model, we illustrate the danger of using observed GDP{emission patterns directly as a policy guide. Our model economy, where decarbonization is exogenous, demonstrates in particular that a carbon policy relating to income levels may not be appropriate even in the face of an observed inverse U{pattern between income and emissions.

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Bibliographic Info

Paper provided by EconWPA in its series Others with number 0506009.

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Length: 23 pages
Date of creation: 10 Jun 2005
Date of revision:
Handle: RePEc:wpa:wuwpot:0506009

Note: Type of Document - pdf; pages: 23
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Web page: http://128.118.178.162

Related research

Keywords: Carbon Kuznets curve; non{stationary panel; regressions with integrated variables; CGE modelling;

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References

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  1. Peter C.B. Phillips & Joon Y. Park, 1998. "Asymptotics for Nonlinear Transformations of Integrated Time Series," Cowles Foundation Discussion Papers 1182, Cowles Foundation for Research in Economics, Yale University.
  2. 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.
  3. Gene M. Grossman & Alan B. Krueger, 1991. "Environmental Impacts of a North American Free Trade Agreement," NBER Working Papers 3914, National Bureau of Economic Research, Inc.
  4. Joon Y. Park & Peter C. B. Phillips, 1999. "Nonlinear Regressions with Integrated Time Series," Working Paper Series no6, Institute of Economic Research, Seoul National University.
  5. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521319867, October.
  6. Wagner, Martin, 2008. "The carbon Kuznets curve: A cloudy picture emitted by bad econometrics?," Resource and Energy Economics, Elsevier, vol. 30(3), pages 388-408, August.
  7. Bertinelli, Luisito & Strobl, Eric, 2005. "The Environmental Kuznets Curve semi-parametrically revisited," Economics Letters, Elsevier, vol. 88(3), pages 350-357, September.
  8. 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.
  9. Phillips, P.C.B., 1986. "Understanding spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 33(3), pages 311-340, December.
  10. Nordhaus, William D, 1991. "To Slow or Not to Slow: The Economics of the Greenhouse Effect," Economic Journal, Royal Economic Society, vol. 101(407), pages 920-37, July.
  11. Grossman, Gene M & Krueger, Alan B, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 353-77, May.
  12. Perman, Roger & Stern, David I., 2003. "Evidence from panel unit root and cointegration tests that the Environmental Kuznets Curve does not exist," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(3), September.
  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.
  14. Stengos, T. & Millimet, D.L. & List, J.A., 2002. "The Environmental Kuznets Curve: Real Progress or Misspecified Models?," Working Papers 2002-13, University of Guelph, Department of Economics and Finance.
  15. Elbert Dijkgraaf & Herman Vollebergh, 2004. "A Note on Testing for Environmental Kuznets Curves with Panel Data," Others 0409001, EconWPA.
  16. 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.
  17. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(03), pages 597-625, June.
  18. Yandle, B. & Bhattarai, M. & Vijayaraghavan, M., 2004. "Environmental Kuznets Curves: a review of findings, methods, and policy implications. PERC Research study 02-1 update," IWMI Research Reports H044740, International Water Management Institute.
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Cited by:
  1. Susanne Dröge & Claudia Kemfert, 2005. "Trade Policy to Control Climate Change: Does the Stick Beat the Carrot?," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 74(2), pages 235-248.
  2. Wagner, Martin, 2008. "The carbon Kuznets curve: A cloudy picture emitted by bad econometrics?," Resource and Energy Economics, Elsevier, vol. 30(3), pages 388-408, August.

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