Investigating the environmental Kuznets curve for Annex I countries using heterogeneous panel data analysis

Abstract

Our paper examines the environmental Kuznets curve (EKC) relationship through a heterogeneous panel analysis of 34 Annex I countries for the 1990 to 2016 period. We confirm the long-run equilibrium relationship between carbon emissions, trade openness, fossil fuel usage, and GDP through the panel cointegration tests that is robust to cross-sectional dependence. Overall, our finding is that the empirical results show no consistent evidence of the EKC hypothesis in Annex I countries via mean group and long-run estimation. Country-specific estimation shows that only 5 of the 34 countries support the EKC hypothesis. From the cointegration test to long-run vector estimation, we indirectly show that fossil fuel usage can distort the EKC results by causing endogeneity, since being strong is related to economic growth. From the synthesized statistics of empirical results, Annex I countries do not follow the EKC relationship. This could imply that because no mitigation has been achieved, climate change can become a much more serious issue, although country-specific results show that mitigation is constantly in progress.