Testing the Environmental Kuznets Curve Hypothesis: The Role of Deforestation

Abstract

This study examines the validity of the environmental Kuznets curve (EKC) hypothesis by augmenting the model with renewable energy consumption, fossil fuel energy consumption, urbanization, and deforestation. The ten countries that jointly own two-thirds of the global forest area are studied over the period of 2000–2015. This study fills the gap in the environmental economics literature by introducing deforestation for the first time as a variable affecting environmental degradation, instead of as a measure of environmental degradation. The long-run equilibrium relationship between the variables was confirmed by Kao (J Econ 90(1):1–44, [40])and Pedroni (Fully modified OLS for heterogeneous cointegrated panels. Emerald Group Publishing Limited, 93–130, [59]) panel cointegration tests. Fully modified ordinary least squares’ (FMOLS) results support the validity of the deforestation-induced EKC hypothesis, and the pairwise Dumitrescu and Hurlin Granger causality test suggests the existence of a causal relationship among the variables. The empirical results suggest that policies which induce afforestation—such as afforestation grants, tax exemptions for plantations, and tariffs on imports for forest products—are crucial to reducing the carbon dioxide (CO2) emissions in host countries.