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Testing the EKC hypothesis for the USA by avoiding aggregation bias: a microstudy by subsectors.
Alper Aslan1, Oguz Ocal2, Baki Özsolak3
1Department of Aviation Management, Faculty of Aeronautics and Astronautics, Erciyes University, Kayseri, Turkey. alperaslan@erciyes.edu.tr.
Environmental Science and Pollution Research International
|February 1, 2022
Summary
Foreign direct investment, economic growth, and energy consumption impact US carbon dioxide emissions. Trade, not economic growth, significantly reduces CO2, challenging the Environmental Kuznets Curve (EKC) hypothesis in most models.
Area of Science:
- Environmental Economics
- Econometrics
- Energy Policy
Background:
- The Environmental Kuznets Curve (EKC) hypothesis suggests environmental degradation initially increases with economic growth but decreases after a certain income level.
- Previous studies often aggregate CO2 emissions, potentially masking sector-specific dynamics and leading to aggregation bias.
- Understanding the nuanced relationship between economic factors and specific CO2 emission sources is crucial for targeted environmental policy.
Purpose of the Study:
- To investigate the impact of foreign direct investments, economic growth, and energy consumption on various carbon dioxide (CO2) subcomponents in the USA.
- To test the EKC hypothesis using disaggregated CO2 emission data, avoiding aggregation bias.
- To analyze the short-term and long-term effects of trade and energy consumption on environmental quality in the US economy.
Main Methods:
- Utilized the Dynamic Autoregressive Distributed Lag (DARDL) econometric method for time-series analysis.
- Covered the period from 1972 to 2020 for the United States.
- Developed six distinct models, examining total CO2 emissions and five subcomponents (liquid fuel, residential/commercial, electricity/heat, other sectors, transportation) as dependent variables.
Main Results:
- The EKC hypothesis was not supported in most models, with the exception of total CO2 emissions (Model 1).
- Trade emerged as a significant variable, consistently reducing CO2 emissions in both the short and long term.
- Increasing trade and GDP per capita, coupled with decreasing energy consumption, were identified as beneficial for improving US environmental quality.
Conclusions:
- The study challenges the universal applicability of the EKC hypothesis in the US context when disaggregated CO2 data is considered.
- Trade policy is a key lever for mitigating CO2 emissions in the US.
- A multi-faceted approach, considering specific emission sources and economic drivers, is necessary for effective environmental policy in the US.
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