Smooth ‘inverted-V-shaped’ & smooth ‘N-shaped’ pollution-income paths

Nektarios Aslanidis and Anastasios Xepapadeas
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Nektarios Aslanidis: Department of Economics, University of Crete, Greece

No 405, Working Papers from University of Crete, Department of Economics

Abstract: We explore the idea of regime switching as a new methodological approach in the analysis of the emission-income relationship. A static smooth transition regression model is developed with fixed-effects. The basic idea is that when some threshold is passed, then the economy could move smoothly to another regime, with the emission-income relationship being different between the old and the new regime. We motive our methodology by proving that the quadratic or cubic polynomial model used in the literature derives from the smooth transition regression specification. The methodology is applied a panel dataset on US state-level sulfur dioxide and nitrogen oxide emissions covering 48 states over the period from 1929 to 1994. We find robust smooth N-shaped and smooth inverse-V-shaped pollution-income paths for the sulfur dioxide. For the nitrogen oxide emissions environmental pressure tends to rise with economic growth in the early stages of economic development then slows down but does not decline with further income growth.

Keywords: Environmental Kuznets Curve; smooth transition regression; regime switching; thresholds (search for similar items in EconPapers)
JEL-codes: C2 O1 Q2 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2004-05-10
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