Has the Environmental Kuznets Curve hypothesis become stronger? A comparative analysis for OECD countries and...

Concerns about the Environmental Kuznets Curve (EKC) hypothesis remain central to debates on whether economic growth inevitably worsens environmental outcomes or eventually leads to sustainability improvements. While the EKC framework has been extensively tested, there is limited comparative evidence on how it manifests across advanced OECD economies versus late-industrializing Asian countries. Motivated by this gap, this study investigates the validity of the Environmental Kuznets Curve (EKC) hypothesis, which posits a nonlinear relationship between economic growth and environmental degradation, for OECD countries and selected late-industrializing Asian nations, including China and India, from 1990 to 2020. The EKC hypothesis suggests that CO2 emissions initially increase during economic development but eventually decline after a certain income threshold. Using advanced panel econometric techniques such as FMOLS, AMG, CCEMG estimators, and causality analysis, the study examines the impact of economic growth and energy consumption on CO2 emissions. For OECD countries, the findings support the EKC hypothesis, revealing an inverted U-shaped relationship between GDP per capita and CO2 emissions. This indicates that economic growth initially exacerbates emissions, but they decrease as economies transition to higher income levels. The results also demonstrate a one-way causality from economic growth to emissions and energy consumption and a bidirectional causality between emissions and energy use. In contrast, the EKC hypothesis does not hold for late-industrializing countries like China and India. These nations exhibit a linear relationship where emissions continuously rise with economic growth, reflecting their heavy reliance on fossil fuels and industrial expansion. These contrasting results underscore the need for tailored policy interventions. Developed economies should enhance their shift toward renewable energy, while late-industrializing countries require strategies to decouple economic growth from emissions. This study contributes to the literature by highlighting the diverse environmental challenges across different economic contexts and providing actionable insights for sustainable development policies aligned with global emission reduction goals. In the case of late-industrializing countries, the causality analysis indicates a one-way causality from GDP to both CO₂ emissions and energy consumption, and a two-way causality between CO₂ emissions and energy consumption. These findings suggest that economic growth continues to drive higher emissions in these economies, thereby challenging the EKC hypothesis. Specifically, the results imply that OECD countries should consolidate their progress toward net-zero targets by strengthening renewable energy adoption and efficiency measures, while China and India need more ambitious interventions such as carbon pricing, renewable energy incentives, and industrial restructuring.