Emissions and Global Development: Evidence from the Environmental Kuznets Curve

The global sustainable development agenda indicates that countries must achieve a rapid reduction in greenhouse gases emissions (decarbonization) while sustaining economic growth to continue improving living standards -especially in developing countries-. The relationship between emissions and economic growth is complex. One of the most widely used tools to model this relationship is the so-called Environmental Kuznets curve (EKC). The EKC suggests the existence of an inverted-U relationship between greenhouse gases (GHG) emissions and economic growth. In this work, we estimate the EKC for a broad panel of countries spanning the last three decades (1990-2019), using a panel regression with fixed effects. We find a positive relationship between GHG emissions and growth. Emissions eventually turn with income when we narrow down the analysis to carbon dioxide excluding land use, land use change and forestry, supporting the EKC hypothesis. These results are robust when decomposing by emitting activities (energy and industrial processes) and sub-activities (electricity, transportation and buildings), but they are not robust to decomposition by regions. In the 1990-2019 sample, we find no relationship between emissions and growth in the Latin American and the Caribbean, as well as some other regions. We use the results to assess the level of income at which emissions eventually decouple from growth. Even though we show some disperse results, which are common in the literature, we recommend cautiousness and deeper research in fostering growth hoping emissions will eventually turn. Therefore, decarbonization efforts should not be diminished.