Nonlinear Relationship between Income and Pollution: Evidence from the Environmental Kuznets Curve in East Asia & Pacific countries

Abstract

This study empirically investigates the nonlinear relationship between economic growth and environmental degradation in EAP countries within the framework of the Environmental Kuznets Curve (EKC) hypothesis. Using panel data for 3 EAP countries spanning 1981–2015, we examine the impact of per capita income and its square alongside forest area, foreign direct investment (FDI), population density, urbanization, and trade openness on carbon dioxide (CO₂) emissions. The Augmented Dickey-Fuller (ADF) unit root test and Autoregressive Distributed Lag (ARDL) bounds testing approach are employed to explore long-run and short-run dynamics. The results confirm the existence of an inverted U-shaped relationship between income and pollution, validating the EKC hypothesis. Forest area and urbanization significantly reduce CO₂ emissions in the long run, while FDI and trade openness exhibit mixed effects. The findings highlight the need for coordinated economic and environmental policies to ensure sustainable development in EAP economies.

Keywords: Environmental Kuznets Curve, CO₂ Emissions, Economic Growth, ARDL, Developing Countries, Nonlinear Relationship