Investigating the direct and indirect linkages between economic development and CO₂ emissions: a PSTR analysis

This paper re-assesses the relationship between economic growth and pollution emissions using a large panel of 146 economies over the period 1990-2016. For our empirical investigation, we rely upon a panel smooth threshold regression (PSTR) model which is a more flexible method for appraising cross-country heterogeneity and time instability. Furthermore, we analyze additional non-linearities in the income-pollution nexus coming from trade openness and financial development channels. Our empirical findings support the existence of environmental Kuznets curve hypothesis for the global sample as well as for income-specific sub-samples. Our sub-sample results show stark differences in the threshold points and the latter increase with the level of economic development. Finally, our investigation of the indirect channels reveals that both trade openness and financial development mediate the adverse effects of income on the pollution emissions of the selected countries. These findings enable us to advance some very important policy implication for the sample economies.