This paper uses panel data on Taiwan to examine the Environmental Kuznets
Curve (EKC) relationship between per capita income and air pollution. In the EKC
literature, EKC is always estimated in the form of a single equation. However, since
both income and environmental quality are endogenous variables, i.e., they impact
upon each other, the estimation of single equation relationships where simultaneity
exists will produce biased and inconsistent estimates. We specify the channels
through which Y (income) affects P (pollution) and P affects Y in a conceptual model and then formulate a two-equation simultaneous model for empirical research. We test for exogeneity with the Hausman test and estimate the simultaneity model using the
two-stage least squares method. The inverted U-shaped relationships are found between NO2/CO and per capita income in Taiwan. As income grows, there is first an increase in the levels of NO2 and CO, followed by a decrease. Air pollution, however, does not significantly affect income.
Relation:
Human Capital, Trade and Public Policy in Rapidly Growing Economies: From Theory to Empirics, pp.269-290
