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Exploring the Carbon Kuznets Hypothesis

  • Georg Muller-Furstenberger

    (University of Bern)

  • Martin Wagner

    (University of Bern)

  • Benito Muller

    (Oxford Institute for Energy Studies)

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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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
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Joon Y. Park & Peter C.B. Phillips, 1998. "Nonlinear Regressions with Integrated Time Series," Cowles Foundation Discussion Papers 1190, Cowles Foundation for Research in Economics, Yale University.
  2. Park, Joon Y. & Phillips, Peter C.B., 1999. "Asymptotics For Nonlinear Transformations Of Integrated Time Series," Econometric Theory, Cambridge University Press, vol. 15(03), pages 269-298, June.
  3. 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.
  4. Gene M. Grossman & Alan B. Krueger, 1994. "Economic Growth and the Environment," NBER Working Papers 4634, National Bureau of Economic Research, Inc.
  5. 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.
  6. Peter C.B. Phillips, 1985. "Understanding Spurious Regressions in Econometrics," Cowles Foundation Discussion Papers 757, Cowles Foundation for Research in Economics, Yale University.
  7. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  8. 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.
  9. 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.
  10. Bertinelli, Luisito & Strobl, Eric, 2005. "The Environmental Kuznets Curve semi-parametrically revisited," Economics Letters, Elsevier, vol. 88(3), pages 350-357, September.
  11. 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.
  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. Elbert Dijkgraaf & Herman Vollebergh, 2004. "A Note on Testing for Environmental Kuznets Curves with Panel Data," Others 0409001, EconWPA.
  14. 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.
  15. 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.
  16. 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.
  17. repec:cup:cbooks:9780521319867 is not listed on IDEAS
  18. 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.
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