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CO2 and Economic Development: The Role of Regulations, Trade, Institutions, and Innovation
Uyar, Melisa
Uyar, Melisa
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Abstract
This study seeks to uncover the shape and turning points of the Environmental Kuznets Curve (EKC) by examining the various channels that define the CO2-output relationship. The EKC is an inverted U-shaped curve that demonstrates the relationship between pollution and income. CO2 pollution generated by human activities is the leading contributor to global warming. As the global economy continues to grow with developed countries experiencing high GDP levels and many countries still at low development status, policymakers must find a way to balance economic growth and subsequent pollution. This study uses a sample of 217 countries from the World Bank Development Indicators database to examine the relationship between economic growth and pollution. Traditional EKC models are extended to include measures of trade, innovation, and regulation using fixed effects models. Fixed effects OLS regression results and calculated turning points of these models can reveal important insights into the CO2-GDP relationship, specifically relative levels of the size effect, income effect, and composition effects. Results find the existence of an inverted U-shaped EKC and a composition effect for trade variables, income effect for innovation variables through efficiency-enhancing effects of innovation, and income effect for regulation variables.
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2024-01-01