In search of an environmental Kuznets curve in sulphur dioxide concentrations: a Bayesian model averaging approach

The exact specification and motivation for an environmental Kuznets curve (EKC) is the subject of a vast literature in environmental economics. A remarkably diverse set of econometric approaches and candidate regressors have been proposed, which highlights the degree of model uncertainty surrounding the relationship between environmental quality and pollution. We introduce Bayesian model averaging (BMA) to the EKC analysis to examine: (a) whether a sulphur dioxide EKC exists, and if so (b) which income/pollution specification is supported by the data. BMA addresses model uncertainty as part of the empirical strategy by incorporating the uncertainty about the validity of competing theories into the posterior distribution. We find only weak support for an EKC, which disappears altogether when we address issues relating to the extreme oversampling of two industrialized countries in the sample. In contrast, our results highlight the relative importance of political economy and site-specific variables (specifically executive constraints and precipitation variation) in explaining pollution outcomes. Trade is shown to play an important indirect role, as it moderates the influence of the composition effect on pollution.