Environmental Kuznets Curve: A New Functional Form in the Case of Low-Income Countries

Since the late 1980s climate change as an incessant controversial topic has occupied the agenda of the top economies, sparking a heated debate among researchers, policy-makers, and international organizations. IMF argued that climate change imposes a huge threat on the long-run development and growth of world nations. While trying to capture the real drivers behind it, the United Nations (UN) reveals that CO₂ emissions that contribute to more than 66% of the greenhouse gases can be claimed responsible. Hence, uncovering the relationship between CO₂ emissions and countries’ economic growth is vital. To assess the relationship between CO₂ emissions and economic growth, the paper will use the Environmental Kuznets’ Hypothesis (EKC). The previous empirical findings on EKC hypothesis found a bidirectional relationship between CO₂ emissions and growth. Thus, a new functional form is introduced to capture the empirical literature as well as test the normal functional form. Using ARDLand stability testing as econometric techniques. Employing time-series data approaches for 60 years from 1960 to 2018 for the low-income countries group. The results are robust and support the presence of both EKC and its extended version in the long-run in some low-income countries.