Revisiting the carbon emissions hypothesis in the developing and developed countries: a new panel cointegration approach

Abstract

Since global warming worsens with economic development and emitted CO₂ is one of the main greenhouse gases, it is important to understand the relationship between CO₂ emissions and economic growth. The paper applies a new panel cointegration test with cross-sectional dependence and structural breaks to examine this relationship in developed and developing countries, respectively. The results indicate that the “Environmental Kuznets Curve” does not hold in either group. For developing countries, there is neither linear nor quadratic long-term equilibrium relationship between CO₂ emissions and economic growth. For developed countries, the quadratic relationship does exist between CO₂ emissions and economic growth, whereas the linear one does not. A half of these countries have inverted U-shaped curves, while the other half have U-shaped curves. Besides, most of these countries are still on the rising stage of the curve. This paper gives new insights for policymakers to keep a balance between sustainable economic growth and suitable environmental quality.