Testing for Environmental Kuznets Curve and Pollution Haven Hypothesis: A Continental Analysis

Abstract

Environmental pollution and sustainable development have become major concerns for policy makers as both may not be achieved simultaneously. On one hand, economic growth and foreign direct investments (FDI) are necessary for the countries to prosper. On the other hand, economic growth and FDI are related with environmental pollution which affects atmosphere at global level and poses threat to all those who share common environment. To address this concern, this study tests the validly of environmental Kuznets curve (EKC) and pollution haven hypothesis (PHH) for CO2 emission. The study uses cross-sectional as well as panel data for a sample of 42 countries from three continents (Asia, Africa and Europe) and covers the period from 1990 to 2014. The study applies ordinary least square, pooled OLS, fixed effect model, random effect and twostage least square techniques to estimate the models. The study finds that energy use and globalization positively impact pollution when estimated for full sample. Moreover, the study suggests that EKC holds for full sample, Asia, and Europe while results do not confirm EKC for Africa continent. Besides, the study finds that PHH does not sustain in any of the three continents. The study suggests that use of cleaner energy should be promoted to mitigate CO2 emission. Therefore, the policy makers should design alternative policies for Africa to reduce global environmental degradation.