Investigating the Environmental Kuznets Curve hypothesis using Environmental Performance Indices

Abstract: This essay investigates the Environmental Kuznets Curve (EKC) hypothesis using the Environmental Performance Index (EPI). The index incorporates various environmental indicators related to human health as well as the human impact on ecosystem vitality. Therefore it assesses environmental quality better than separate environmental indicators, which are usually used to test the EKC hypothesis. We run OLS regression on cross-section data including developed and developing countries for the years 2006 and 2008. Our estimates confirm the EKC hypothesis: We find that the environmental quality initially worsens but eventually improves with an increasing level of per capita income. The impacts of income inequality and the level of political freedom on the environmental performance are also studied. The overall results suggest that there is a strong positive impact of the level of political freedom on the environmental performance, while income inequality appears to have an ambiguous impact.