Economic Development and CO2 emissons : A comparison of High- and Middle-income economies

Abstract: The purpose of this paper is to investigate the relationship between economic development and pollution in the middle- and high-income countries for the period between 1960 and 2014. The study is conducted by first testing the environmental Kuznets curve, an economic theory that income has an inverted U-shape relationship with environmental degradation. Later, the Revised environmental Kuznets curve is tested, an economic theory that countries undergoing economic development at a later period will have a lower peak of environmental degradation compared to countries undergoing economic development at an earlier period. Empirical tests of carbon dioxide (CO2) per capita and income (GDP per capita) were conducted in two different panel tests containing middle-income countries in one and high-income countries in the other. The observed relationship shows that a country's early economic development degrades the environment until what is called the turning point is reached, after which the environment improves with further economic development. Thus, the expected inverted U-shape is observed for both MIE and HIE. Furthermore, the tests tell us that the turning point for MIE is significantly lower than for HIE, which is the expected result.