Regional differences in sustainable development: An Environmental Kuznets Curve analysis

Lunds universitet/Nationalekonomiska institutionen 2023

The Environmental Kuznets Curve (EKC) is commonly associated with the question if economic growth could be the solution to the environmental crisis, with early empirical focus on developed countries. The EKC discussion has since evolved into a generic framework of analysing relationships between environmental and economic indicators, and has proved to become a useful tool of modelling this relationship. This study aimed to give a theoretical and empirical overview of the Environmental Kuznets Curve hypothesis, and examined the relationship between carbon dioxide emissions and Gross Domestic Product in the context of developing countries and in relation to the mechanisms of the curve. This was done by modelling the curve on four sets of panel data containing countries from four regions of developing countries (Latin America, Asia, West and East Africa) using the panel fixed effects model and the quadratic specification of the EKC. In addition the study conducted a Granger-causality analysis across the combined panel in order to examine the underlying dynamics of the variables. The result of the panel fixed effects model showed that there are differences in sustainable development, with significant evidence of an inverted U-shaped EKC relationship in Latin America, qualitatively but less statistically significant evidence of the same in Asia, but the reverse relationship in both of the African regions. The causality analysis found evidence of a bi-directional relationship where carbon dioxide and GDP might Granger-cause each other. The findings suggest the need of less carbon intensive energy production and stricter environmental regulation in developing countries.

Environmental Kuznets Curve; Granger causality; Latin America; Asia; Africa; Business and Economics; M2

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