Testing the Environmental Kuznets Curve Hypothesis in Bangladesh

Abstract

The environmental Kuznets curve (EKC) indicates an inverted U-shaped relationship between economic growth and environmental degradation. It implies environmental degradation or pollution rises at the early stage of economic growth but will tend to decrease at the level of high income. The aim of this study is to investigate the existence of the EKC for an emerging economy in Asia, Bangladesh, over the 1971-2014 period using the Johansen cointegration technique and vector error correction model (VECM). For this purpose, this study used two different pollutants: carbon dioxide (CO2) emissions per capita and nitrous oxide (N2O) emissions per capita as the environmental indicator and GDP per capita as the economic indicator. Energy use per capita and trade openness are also used in this study to avoid omitted variable bias. The empirical result indicates a statistically significant long run relationship between the per capita emissions of two pollutants and the GDP per capita. The empirical result also confirms the existence of the inverted U-shaped EKC for both the pollutants (CO2 and N2O). The income turning points equal to 727 US$ per capita and 554 US$ per capita have been found for CO2 and N2O, respectively. This study suggests that Bangladesh should formulate sustainable economic policies to control environmental degradation. In particular, development plans should have specific policies and guidelines to reduce carbon emissions.