Economic growth and environmental degradation: evidence from the US case environmental Kuznets curve hypothesis with application of decomposition

ABSTRACT

This study re-tests the environmetal Kuznets curve (EKC) hypothesis for the US, based on a methodology that differentiates this study from previous empirical studies.To this aim, the per-capita income series (variable) is decomposed into its increases and decreases as two new time series and only one series, which contains income increases, is used. The rationale of this decomposition method is that the EKC hypothesis is originally postulated based on the impacts of income increases on environmental degradation. Therefore, this decomposition may allow us to test the EKC hypothesis more accurately through only income increases in accordance with its original postulation. Following decomposition, the ARDL approach to cointegration is applied between 1990M1 and 2019M7. Empirical findings of decomposed and undecomposed models are exactly opposite to each other. While the undecomposed model does not detect evidence of the EKC hypothesis for the US, the decomposed model strongly does so. This can lead to the interpretation that the decomposed model discovers-detects the existing but concealed validity of the EKC hypothesis, which the undecomposed model is not capable of detecting. Based on this result, this study proposes using this method as well, as an alternative technique for the EKC hypothesis testing models.

KEYWORDS:

• EKC
• CO₂ emissions
• decomposition
• ARDL

JEL:

• P18
• P28
• Q40
• Q43

Acknowledgements

This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.

Disclosure statement

No potential conflict of interest was reported by the author(s ).

Notes

1 The EKC is named after Kuznets (1955) who hypothesized an inverted U-shaped relationship between income inequality and economic growth.