Environmental Quality and Economic Growth: A Panel Analysis of the "U" in Kuznets

The primary motivation behind this study was to search for evidence of the link between environmental quality and economic growth so as to answer the relevant question of whether economic growth alone could serve as a long-run solution to environmental damage as implied by EKC hypothesis. Here we analyze the relationship using a panel of 47 countries over the period 1970 -2008. Using Random-effect estimation and two-stage least square, our results leads to the following conclusions: relying on a quadratic model can easily mislead researchers to ratify the existence of EKC; the EKC hypothesis ceased to hold whenever an alternative functional form (cubic) is employed. At best, the relationship between economic growth and environmental quality is shown to be typified by an N-shaped curve. The paper maintained that simply waiting for an automatic arrival of a delinking point for environmental damage given long-run growth will not be a feasible solution to environmental quality. A number of feasible policy menu and critical questions to guide selection of the best instrument capable of bringing about a downturn in environmental damage have been suggested in the paper.