Testing the EKC Hypothesis at Different Development Levels

The Environmental Kuznets Curve, introduced in the 1960s, has long been regarded as a cornerstone theory in environmental economics, suggesting an inverted U-shaped relationship between economic growth and environmental degradation. While extensively tested across national and panel data, much of the literature has focused on homogeneous or undifferentiated panels, overlooking the influence of development status. This chapter investigates the existence of the EKC at a global level and examines whether a country’s development stage, based on the United Nations classification system, affects both the shape of this relationship and its turning point. Employing Ordinary Least Squares models and refining the analysis with Dynamic OLS to ensure robustness, the study further applies Granger causality tests to explore causal dynamics. The findings confirm that both the undifferentiated global panel and developed countries exhibit the EKC, while developing countries follow a more traditional linear path between growth and environmental degradation. Subpanel analysis additionally highlights regional variations, pointing to important heterogeneities. A central contribution of this study lies in distinguishing development status from income groupings, thereby uncovering a pronounced disparity in green growth trajectories. In particular, developing economies are found to face significantly higher turning points, underscoring the urgent need for early intervention. The results challenge the assumption that growth alone is sufficient to reduce emissions in the long run, especially in developing contexts, and advocate for proactive climate policies aimed at decoupling growth from emissions earlier in the development process. Policy recommendations highlight the importance of strategies grounded in the principle of common but differentiated responsibilities, accounting for structural characteristics and divergent development tracks.