Environmental Kuznets Curve and Pollution Haven Hypothesis

There has been limited empirical work done in the recent past to test the hypotheses of EKC and PH. Results obtained in this paper validate EKC hypothesis for total carbon dioxide emissions and carbon dioxide emissions from liquid fuel consumption from a panel of countries. This is robust to inclusion of additional covariates and division of countries on the basis of income. Financial development increases total emissions in high income countries whereas it decreases emissions in non high income countries in the long run. Trade to GDP ratio does not affect emissions significantly in case of high income countries. In case of non high income countries, trade to GDP ratio increases the emissions from solid fuel in the long run. Also in case of non high income countries increase in trade to GDP ratio increases total emissions and emissions from liquid fuel consumption in short run. Therefore, there is evidence in favour of pollution haven hypothesis in short run. It is logical as we expect the emissions shifting aspect of trade to be operative in short run whereas in long run the trade should be determined by comparative advantages.