Working Paper BETA #2015-05

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Title : Environmental Kuznets Curve and Economic Growth: The Role of Institutional Quality and Distributional Heterogeneity Revisited.

Author(s) : Tapas Mishra, Mamata Parhi, Claude Diebolt, Prashant Gupta

Abstract : We re-examine the frequency observed inverted U-Shaped relationship between income and environmental quality (Environmental-Kuznets-Curve, EKC) by introducing the roles of institutional quality and distributional heterogeneity. A panel quantile regression of 127 economies run over a period of four decades demonstrates that once endogeneity bias is corrected and heterogeneity in the effects of income and institutional quality is introduced, EKC tends to disappear at higher quantiles of emission but proves its existence at lower quantiles. The non-uniqueness of EKC is also confirmed by robustness checks where various instruments for institutional quality as well as an alternative measure of emission are introduced.

Key-words : Income and environment, Endogeneity bias, Institutional heterogeneity, Instrumental variable, Panel quantile regression.

JEL Classification : Q56, C21, C23.