Environmental Kuznets curve for local and global pollutants: application of GMM and random coefficient panel data models

The objective of the study is to test the empirical validity of the environmental Kuznets curve hypothesis—an inverted U shape relationship between economic growth measured by GDP and environmental damage from the global pollutant, carbon dioxide (CO2) and the local pollutant, sulphur dioxide (SO2) emissions. We use a sample of 57 economies for CO2 and 63 economies for SO2 for the period 1992–2011. The study uses dynamic panel data model (GMM approach) to address the dynamism in the emission level and endogeneity of income, if any. We also use the random coefficient model (RCM) to test the validity of the assumption that all the economies in a sample travel the same growth path. Our results differ from the findings of the previous studies. Results of our dynamic panel model show evidence supporting EKC hypothesis in case of CO2 for both developing and developed economies. For the local pollutant, SO2 emission, a monotonically decreasing relationship with income is found in the context of developed economies, but insignificant impact of income is found for developing economies. Results pertaining to the RCM show that income and its square have insignificant impact on both local and global pollutant and therefore do not support the EKC hypothesis for both developing and developed economies.