Environmental Kuznets Curves for CO2: Heterogeneity versus Homogeneity

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Abstract
We explore the emissions-income relationship for CO2 in OECD countries using various modelling strategies.Even for this relatively homogeneous sample, we find that the inverted-U-shaped curve is quite sensitive to the degree of heterogeneity included in the panel estimations. This finding is robust, not only across different model specifications but also across estimation techniques, including the more flexible non-parametric approach.Differences in restrictions applied in panel estimations are therefore responsible for the widely divergent findings for an inverted-U shape for CO2. Our findings suggest that allowing for enough heterogeneity is essential to prevent spurious correlation from reduced-form panel estimations. Moreover, this inverted U for CO2 is likely to exist for many, but not for all, countries.

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