Global Dynamics of Environmental Kuznets Curve: A Cross-Correlation Analysis of Income and CO2 Emissions

The environmental Kuznets curve (EKC) hypothesis posits an inverted U-shaped relationship between economic growth and environmental degradation. However, there is no consensus regarding the EKC hypothesis among countries and regions of different income groups. This study revisits the EKC hypothesis by employing cross-correlation analysis to explore the income-CO2 emissions relationship across 158 countries and 44 regions from 1990 to 2020. The empirical method utilizes a dynamic cross-correlation coefficient (CCC) approach, allowing for the assessment of lead-lag dynamics between income and CO2 emissions over time. By categorizing nations into the World Bank's income classifications, we found a heterogeneous EKC pattern highlighting distinct environmental-economic dynamics across different income groups. The findings indicate that high-income countries show a decoupling of economic growth from CO2 emissions; whereas, low-income countries still exhibit a positive correlation between both variables. This underscores the necessity for tailored policy interventions that promote carbon neutrality, while considering each country's unique development stage. Our research contributes to the ongoing issue of sustainable economic development by providing empirical evidence of the different pathways nations follow in balancing growth with environmental preservation.