Rule of law and the Environmental Kuznets Curve: evidence for carbon emissions

Abstract

In response to recently growing literature investigating the relationship between environment and institutions, this study investigates how rule of law influences the level of income at the turning point of the Environmental Kuznets Curve (EKC). Using an alternative specification of EKC that avoids nonlinear transformation of potentially nonstationary regressors, investigated by Bradford et al. (2005) and Leitao (2010), we find the evidence for the EKC in European countries for carbon emissions. Our results find a negative relationship between pollution and rule of law, demonstrating that when rule of law is strong, the turning point of the EKC occurs at a lower level of income per capita, thus, decreasing emissions. In terms of policy implication, our study suggests that institutional reinforcement should deserve close attention in designing and enforcing policies that limit environmental degradation.Environmental Kuznets Curve, Rule of law, Panel data, Turning point