The Environmental Kuznets Curve: Exploring a Fresh Specification

Abstract The objective of this paper is primarily methodological. Using a new specification, we reanalyze the data on worldwide environmental quality investigated by Gene Grossman and Alan Krueger in their well-known paper on the environmental Kuznets curve (which postulates an inverse U-shaped relationship between income level and pollution). This new specification avoids using nonlinear transformations of potentially nonstationary regressors in panel estimation, which is a major unresolved econometric problem plaguing much of the existing literature. We furthermore draw conclusions from fixed effects estimation, which had eluded Grossman and Krueger. Our estimation results indicate the presence of an EKC for only six of the fourteen pollutants, whereas Grossman and Krueger find support for all but one pollutant.