Are there Environmental Kuznets Curves for US State-Level CO2 Emissions?

The paper assesses the existence of the Environmental Kuznets Curve (EKC) hypothesis, across 48 contiguous states of the US, using recent advances in panel data techniques, given the existence of cross-sectional dependence, which in turn, makes reliance on time-series evidence biased. The Common Correlated Effects (CCE) estimation procedure of Pesaran, (2006), allows us to obtain state-level results, while staying in a panel set-up to accommodate for cross-sectional dependence, in the presence of cointegration in the relationship between emissions and a measure of output, and its squared value – a function that captures the inverted u-shaped relationship postulated by the EKC. Our results show that, the EKC hypothesis holds for only 10 of the 48 states, and hence implies that, the remaining 38 states should reform a number of their environmental regulatory policies to prevent environmental degradation, since otherwise, lower levels of emissions would only be possible at the expense of production.