Industrialization, servicification, and environmental Kuznets curve: non-linear panel regression analysis

This paper investigates whether the impact of income on CO₂ emissions is invariant to endogenously estimated threshold levels for the economic structure (ES) represented by value added in manufacturing, industry, and service sector shares in GDP for a panel of 54 economies over the 1971-2017 period. Our panel smooth transition regression estimation results strongly suggest that the sensitivity of CO₂ emissions to income is substantially much higher in countries with higher manufacturing and industry sector shares, whilst it is much lower in servicified economies. Given the argument that manufacturing is the engine of growth, this finding may not necessarily downgrade the crucial importance of an industrial policy which places the manufacturing at the core. The empirical findings in this paper suggest that countries may better to design and implement a strategic and systematic industrial policy which promote the use of emission reduction technologies and encourage manufacturing and industrial sectors with lower carbon emissions.