Testing the environmental Kuznets curve hypothesis in the transport sector for OECD countries: Evidence from a panel threshold model

Abstract

This study tests the environmental Kuznets curve (EKC) hypothesis in the transport sector for 28 OECD countries from 1990 to 2019. The relationship between economic growth and carbon dioxide (CO2) emissions from the transport sector is investigated using a dynamic panel threshold regression based on the GMM estimator while taking into account the effects of road petroleum products consumption, renewable energy consumption, and trade openness. The threshold regression results when gross domestic product (GDP) per capita is used as a transition variable support the nonlinearity of the relationship between CO2 emissions from the transportation sector and GDP by rejecting the null hypothesis of no threshold effect. This finding indicates the existence of two different regimes below and above the GDP per capita threshold, namely the low and high regimes. In the lower regime, economic growth damages the environment, whereas, it improves environmental quality above the threshold. The results indicate an inverted U-shaped relationship and support the EKC hypothesis in the OECD transportation sector. They also imply that economic growth is essential for reducing transport-related CO2 emissions because it is expensive to invest in eco-friendly technologies.