Deforestation and the Environmental Kuznets Curve in Developing Countries: A Panel Smooth Transition Regression Approach

Deforestation is a serious environmental problem in many developing countries. This study re-examines whether the Environmental Kuznets Curve (EKC) relationship between deforestation and real income exists for 52 developing countries during the 19722003 period by applying the recently developed panel smooth transition regression (PSTR) model. This paper also considers the potential endogeneity biases and other explanatory variables as a robustness check of the EKC hypothesis. The empirical results indicate the existence of a strong threshold effect between deforestation and real income, and that evidence of the EKC hypothesis for deforestation is apparent. Along with an increase in real income, deforestation increases initially, and after reaching certain income levels, deforestation drops. The turning points are US$3,021 and US$3,103, which the PSTR model endogenously determines.