Analyzing Pollution Emissions and Economic Growth in Asia Through the Lens of the Environmental Kuznets Curve

Abstract The Environmental Kuznets Curve (EKC) hypothesis posits an inverted-U relationship between pollution emissions and economic growth. This means that economic growth goes hand-in-hand with environmental pollution emissions until a turning point is reached where pollution emissions and economic growth begin to decouple. This study examined the nonlinear cointegrating relationship of pollution emissions with economic growth alongside select developmental variables to test the EKC hypothesis using a panel data sample comprising 34 Asian economies over the period 2001 to 2013. The study estimated panel Autoregressive Distributed Lag (ARDL) models in the forms of Pooled Mean Group (PMG) and Mean Group (MG) models, which were tested against one another using the Hausman specification test. For robustness checks, the same procedure was applied to disaggregated panel groupings by income classifications of Asian economies. The results reveal that the EKC hypothesis holds in the total Asia sample; but not robust across the disaggregated panel groups. Interestingly, the EKC holds only among the middle-income economies and not among the low-income and high-income economies. The turning point GDP in the Asian EKC was estimated to be within the range of US$ 32,003 to US$ 38,793 per capita, confirming that only Singapore, Japan, and the United Arab Emirates were the only economies to have transitioned towards the coveted second half of the EKC, while some economies like Hong Kong and Israel are almost at the turning point. These findings support the argument that majority of the Asian economies have not yet reached the ideal phase where economic growth decouples with environmental degradation.