Economic growth and carbon emissions: investigating the environmental Kuznets curve hypothesis

Abstract

The study examines the emission consequences of economic growth by testing the environmental Kuznets curve hypothesis. To overcome the difference in the integrated orders of time series, autoregressive distributed lag models are used to test cointegration. The results confirm both short and long term that Hungary has reached a threshold income level above which economic growth does not increase carbon emissions. The basic model identifies the inverse U-shaped, while the model extended with energetic, financial, and demographic macro processes identifies the inverse N-shaped curve, which is also confirmed by impulse response functions. Carbon emissions are significantly affected by electricity use, urbanisation, and financial development. According to variance decomposition, economic growth and electricity consumption play the largest role in carbon emissions