Can environmental sustainability be achieved in OECD countries? Panel estimation of Environmental Kuznets Curve theory

Abstract

The relationship between the environment and the economy is one of the most frequently encountered issues recently. One of the problems that countries have faced recently is environmental sustainability. Therefore, this study is purposed to examine the relationship between environmental and economic variables. In the example of 24 OECD member countries, the entity of Environmental Kuznets curve theory is examined in the inverse U-link between per capita GDP and per capita carbon dioxide emissions. We analyzed the inverted U-link between CO2 emissions and per capita GDP in annual balanced panel data covering the period 1980–2014. Westerlund’s cointegration test was used for analysis. For long-term parameter estimation, PMG (Pooled Mean Group) estimator methods were applied. Dumitrescu and Hurlin Granger causality test was performed to specify causal connections. As a result of the study, it is pointed out that first of all, electricity consumption has a positive and significant effect on CO2 emissions in the long run. Secondly, our findings show that environmental degradation is in an inverted U shape in the Environmental Kuznets Curve hypotheses. That is to say, results were obtained verifying the existence of the Environmental Kuznets Curve theory. Eventually, bidirectional causal links are observed between CO2 emissions and economic growth and between CO2 emissions and electricity consumption.