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The Environmental Kuznets Curve: some really disturbing Monte Carlo evidence







The Environmental Kuznets Curve hypothesis posits an inverse U- shaped relation between environmental pollution and income. The empirical literature has largely ignored the time series properties of the data used to test the EKC. This paper uses Monte Carlo experiments to analyse whether the order of integration influences the EKC empirical strategy. We show that if the variables used are I(1), the results will spuriously confirm the EKC hypothesis in 40% of the cases. Furthermore, accepting the EKC also influences the critical values for the rejection of no cointegration in the Engle- Granger framework.

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  • T. Verbeke & M. De Clercq, 2004. "The Environmental Kuznets Curve: some really disturbing Monte Carlo evidence," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/242, Ghent University, Faculty of Economics and Business Administration.
  • Handle: RePEc:rug:rugwps:04/242

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    References listed on IDEAS

    1. Stern, David I. & Common, Michael S., 2001. "Is There an Environmental Kuznets Curve for Sulfur?," Journal of Environmental Economics and Management, Elsevier, vol. 41(2), pages 162-178, March.
    2. Junsoo Lee & John List, 2004. "Examining Trends of Criteria Air Pollutants: Are the Effects of Governmental Intervention Transitory?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 29(1), pages 21-37, September.
    3. 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.
    4. Holtz-Eakin, Douglas & Selden, Thomas M., 1995. "Stoking the fires? CO2 emissions and economic growth," Journal of Public Economics, Elsevier, vol. 57(1), pages 85-101, May.
    5. Stern , David I., 1998. "Progress on the environmental Kuznets curve?," Environment and Development Economics, Cambridge University Press, vol. 3(02), pages 173-196, May.
    6. Gene M. Grossman & Alan B. Krueger, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 353-377.
    7. William T. Harbaugh & Arik Levinson & David Molloy Wilson, 2002. "Reexamining The Empirical Evidence For An Environmental Kuznets Curve," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 541-551, August.
    8. Roger Perman & David I. Stern, 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), pages 325-347, September.
    9. Shafik, Nemat, 1994. "Economic Development and Environmental Quality: An Econometric Analysis," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 757-773, Supplemen.
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    More about this item


    Environmental Kuznets Curve Hypothesis; I(1); cointegration; monte carlo;

    JEL classification:

    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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