Does the ‘environmental Kuznets curve’ exist? An application of long-run structural modelling to Saudi Arabia

A. Mansur M. Masih, Lurion De Mello

Research output: Contribution to journalArticleResearchpeer-review

Abstract

This study examines the relationship between income and CO2 emission on a per capita basis in Saudi Arabia during 1975-2003. It is motivated by the recent heightened world concern over global warming pollution which resulted in the formulation of the Kyoto protocol and its rapid ratification by a majority of countries in the late 1990s. There have been many attempts to explain the increase in per capita CO2 emission by relating it to per capita income growth in a country via the ‘Environmental Kuznets Curve’ (EKC). The curve is named after Kuznets (1955) who hypothesized that income inequality in a country first rises and then falls as economic growth progresses. The EKC is usually postulated to have an inverted-U shape, which means that per capita income growth is initially associated with an increase in per capita CO2 emission. However, beyond a certain point, the relationship reverses and further per capita income growth is associated with a decrease in per capita CO2 emission. The practical implication of an EKC with inverted-U shape is that a continued increase of per capita income alone would ultimately reduce per capita CO2 emission, thus obviating the need for proactive political intervention. In contrast to the above, our study, based on a recently developed rigorous time series technique known as the Long Run Structural MODELLING (LRSM) (Pesaran and Shin, Econometric Reviews, 2002), indicates that at least in the context of Saudi Arabia (1975-2003) the EKC possesses a cubic-N shape. This implies that although increasing per capita income may indeed be associated with decreasing per capita CO2 emission for a certain period, in the long run the trend will reverse and it will again be associated with increasing per capita CO2 emission. This empirical finding of our study has a significant policy implication in that increases in per capita income alone are not enough to reduce per capita CO2 emission, but should be supported by a proactive industrial/technological policy that tackles related causes and also, since CO2 emission is evidenced to be mainly income-driven, policies should be focused on environment-friendly GDP growth. Moreover, not only the production but also the consumption of GDP, in particular the tastes and preferences of high-income individuals need to be environment-friendly. These findings have profound policy implications for both the developing and the developed economies of the world.
LanguageEnglish
Pages211-235
Number of pages25
JournalEconomia internazionale
Volume64
Issue number2
Publication statusPublished - 2011

Fingerprint

Environmental Kuznets curve
CO2 emissions
Saudi Arabia
Structural modeling
Per capita income
Income growth
Income
Inverted-U
Policy implications
Income inequality
Econometrics
Kuznets
GDP growth
Ratification
Economic growth
Pollution
Global warming
Kyoto Protocol

Keywords

  • environmental Kuznets curve
  • long run structural modelling

Cite this

@article{7daeb13b50964360acf51c5772637db5,
title = "Does the ‘environmental Kuznets curve’ exist? An application of long-run structural modelling to Saudi Arabia",
abstract = "This study examines the relationship between income and CO2 emission on a per capita basis in Saudi Arabia during 1975-2003. It is motivated by the recent heightened world concern over global warming pollution which resulted in the formulation of the Kyoto protocol and its rapid ratification by a majority of countries in the late 1990s. There have been many attempts to explain the increase in per capita CO2 emission by relating it to per capita income growth in a country via the ‘Environmental Kuznets Curve’ (EKC). The curve is named after Kuznets (1955) who hypothesized that income inequality in a country first rises and then falls as economic growth progresses. The EKC is usually postulated to have an inverted-U shape, which means that per capita income growth is initially associated with an increase in per capita CO2 emission. However, beyond a certain point, the relationship reverses and further per capita income growth is associated with a decrease in per capita CO2 emission. The practical implication of an EKC with inverted-U shape is that a continued increase of per capita income alone would ultimately reduce per capita CO2 emission, thus obviating the need for proactive political intervention. In contrast to the above, our study, based on a recently developed rigorous time series technique known as the Long Run Structural MODELLING (LRSM) (Pesaran and Shin, Econometric Reviews, 2002), indicates that at least in the context of Saudi Arabia (1975-2003) the EKC possesses a cubic-N shape. This implies that although increasing per capita income may indeed be associated with decreasing per capita CO2 emission for a certain period, in the long run the trend will reverse and it will again be associated with increasing per capita CO2 emission. This empirical finding of our study has a significant policy implication in that increases in per capita income alone are not enough to reduce per capita CO2 emission, but should be supported by a proactive industrial/technological policy that tackles related causes and also, since CO2 emission is evidenced to be mainly income-driven, policies should be focused on environment-friendly GDP growth. Moreover, not only the production but also the consumption of GDP, in particular the tastes and preferences of high-income individuals need to be environment-friendly. These findings have profound policy implications for both the developing and the developed economies of the world.",
keywords = "environmental Kuznets curve, long run structural modelling",
author = "Masih, {A. Mansur M.} and {De Mello}, Lurion",
year = "2011",
language = "English",
volume = "64",
pages = "211--235",
journal = "Economia internazionale",
issn = "0012-981X",
publisher = "Camera Di Commercio Di Genova",
number = "2",

}

Does the ‘environmental Kuznets curve’ exist? An application of long-run structural modelling to Saudi Arabia. / Masih, A. Mansur M.; De Mello, Lurion.

In: Economia internazionale, Vol. 64, No. 2, 2011, p. 211-235.

Research output: Contribution to journalArticleResearchpeer-review

TY - JOUR

T1 - Does the ‘environmental Kuznets curve’ exist? An application of long-run structural modelling to Saudi Arabia

AU - Masih, A. Mansur M.

AU - De Mello, Lurion

PY - 2011

Y1 - 2011

N2 - This study examines the relationship between income and CO2 emission on a per capita basis in Saudi Arabia during 1975-2003. It is motivated by the recent heightened world concern over global warming pollution which resulted in the formulation of the Kyoto protocol and its rapid ratification by a majority of countries in the late 1990s. There have been many attempts to explain the increase in per capita CO2 emission by relating it to per capita income growth in a country via the ‘Environmental Kuznets Curve’ (EKC). The curve is named after Kuznets (1955) who hypothesized that income inequality in a country first rises and then falls as economic growth progresses. The EKC is usually postulated to have an inverted-U shape, which means that per capita income growth is initially associated with an increase in per capita CO2 emission. However, beyond a certain point, the relationship reverses and further per capita income growth is associated with a decrease in per capita CO2 emission. The practical implication of an EKC with inverted-U shape is that a continued increase of per capita income alone would ultimately reduce per capita CO2 emission, thus obviating the need for proactive political intervention. In contrast to the above, our study, based on a recently developed rigorous time series technique known as the Long Run Structural MODELLING (LRSM) (Pesaran and Shin, Econometric Reviews, 2002), indicates that at least in the context of Saudi Arabia (1975-2003) the EKC possesses a cubic-N shape. This implies that although increasing per capita income may indeed be associated with decreasing per capita CO2 emission for a certain period, in the long run the trend will reverse and it will again be associated with increasing per capita CO2 emission. This empirical finding of our study has a significant policy implication in that increases in per capita income alone are not enough to reduce per capita CO2 emission, but should be supported by a proactive industrial/technological policy that tackles related causes and also, since CO2 emission is evidenced to be mainly income-driven, policies should be focused on environment-friendly GDP growth. Moreover, not only the production but also the consumption of GDP, in particular the tastes and preferences of high-income individuals need to be environment-friendly. These findings have profound policy implications for both the developing and the developed economies of the world.

AB - This study examines the relationship between income and CO2 emission on a per capita basis in Saudi Arabia during 1975-2003. It is motivated by the recent heightened world concern over global warming pollution which resulted in the formulation of the Kyoto protocol and its rapid ratification by a majority of countries in the late 1990s. There have been many attempts to explain the increase in per capita CO2 emission by relating it to per capita income growth in a country via the ‘Environmental Kuznets Curve’ (EKC). The curve is named after Kuznets (1955) who hypothesized that income inequality in a country first rises and then falls as economic growth progresses. The EKC is usually postulated to have an inverted-U shape, which means that per capita income growth is initially associated with an increase in per capita CO2 emission. However, beyond a certain point, the relationship reverses and further per capita income growth is associated with a decrease in per capita CO2 emission. The practical implication of an EKC with inverted-U shape is that a continued increase of per capita income alone would ultimately reduce per capita CO2 emission, thus obviating the need for proactive political intervention. In contrast to the above, our study, based on a recently developed rigorous time series technique known as the Long Run Structural MODELLING (LRSM) (Pesaran and Shin, Econometric Reviews, 2002), indicates that at least in the context of Saudi Arabia (1975-2003) the EKC possesses a cubic-N shape. This implies that although increasing per capita income may indeed be associated with decreasing per capita CO2 emission for a certain period, in the long run the trend will reverse and it will again be associated with increasing per capita CO2 emission. This empirical finding of our study has a significant policy implication in that increases in per capita income alone are not enough to reduce per capita CO2 emission, but should be supported by a proactive industrial/technological policy that tackles related causes and also, since CO2 emission is evidenced to be mainly income-driven, policies should be focused on environment-friendly GDP growth. Moreover, not only the production but also the consumption of GDP, in particular the tastes and preferences of high-income individuals need to be environment-friendly. These findings have profound policy implications for both the developing and the developed economies of the world.

KW - environmental Kuznets curve

KW - long run structural modelling

M3 - Article

VL - 64

SP - 211

EP - 235

JO - Economia internazionale

T2 - Economia internazionale

JF - Economia internazionale

SN - 0012-981X

IS - 2

ER -