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Estimating country-specific environmental Kuznets curves from panel data: a Bayesian shrinkage approach

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Designing an efficient global climate policy turns out to be a difficult yet crucial task since there are noteworthy cross-country differences in energy and carbon intensities. In this article, the environmental Kuznets curve (EKC) hypothesis is tested for carbon dioxide (CO2) emissions, and as a modelling technique, the iterative Bayesian shrinkage procedure is employed to handle the cross-country differences. The results suggest that first the EKC hypothesis is rejected for 47 out of the 51 countries considered when the heterogeneity in countries’ energy efficiencies and cross-country differences in the CO2 emissions trajectories are accounted for; second, a classification of the results with respect to the development levels of the countries concerned reveals that the emergence of an overall inverted U-shaped curve is due to the fact that in high-income countries increase in gross domestic product (GDP) decreases emissions, while in low-income countries emissions and GDP are positively correlated.

Keywords: Bayesian shrinkage estimator; O13; O44; Q56; environmental Kuznets curve; heterogeneity

Document Type: Research Article


Affiliations: 1: Nice Sophia Antipolis University, Nice, France 2: EconomiX – CNRS, University of Paris Ouest, Nanterre, France

Publication date: May 3, 2014

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