An Investigation on Environmental Kuznet’s Curve Hypothesis in Upper Middle Income Countries: Does an Inverted ‘U’ Shaped Exist for CO2 Emissions?

Abstract

The environmental Kuznets curve (EKC) hypothesis introduced by Simon Kuznet in 1955 is a theory that discussed the relationship between economic growth and environmental degradation.  It simply described how in early stage of development of a nation (low per capita income) could generally increase the environmental degradation, and later  shrink after its per-capita income exceeds a certain level forming an inverted ‘U’- shaped curve popularly known as the EKC curve. This study attempts to verify the EKC curve for the upper middle-income countries as well as to determine the factors contributing to the increase in the level of their Carbon Dioxide (CO2) emissions. The results show that Gross Domestic Product (GDP) and energy consumption have a negative and positive significant effect on the level of CO2 emission in these countries, respectively. The EKC curve  portrays an inverted ‘U’- shaped curve as hypothesized and the turning point is computed to be 8.6 implying that their carbon emission will start to decrease after this point. An important implication of this study is that energy consumption proven to be harmful to the environment in these nations but not economic development. Hence, policy should focus on how to consume energy efficiently so as to control the level of carbon emission so as to ensure sustainable growth in the long run.