Lessons from Quantile Panel Estimation of the Environmental Kuznets Curve

The environmental Kuznets curve (EKC) hypothesizes that the income-pollution rela-tionship has an inverted U shape, implying that pollution is increasing in income up to a turning point beyond which pollution decreases. The empirical literature has concentrated on estimation of this relationship at the mean, employing longitudinal data on countries or U.S. states and measures of per-capita income and emissions of pollutants like NOx (nitro-gen oxide) and SO2 (sulfur dioxide). The typical \u85nding supports an inverted U shaped relationship. Estimation at the mean, however, likely masks heterogeneities that can be present at higher and/or lower quantiles of the emissionsdistribution. In addition, mean estimation methods are sensitive to the presence of outliers. This study applies methods for conditional-quantile panel \u85xed e¤ects models to the estimation of the income-emissions relationship on U.S. state-level data on NOx and SO2 pollutants over the period 1929-1994. Our results indicate that methods that focus on the conditional mean provide too optimistic estimates about emissions reduction of NOx, as conditional-quantile methods suggest that the turning point of the relationship occurs at higher values of income; while the opposite is found for SO2. An important lesson we draw from the application of conditional-quantile techniques is that the income-environmental degradation relationship is sensitive to the presence of outliers in the data