Sulfur Emissions In China’s Provinces:an Empirical Analysis Using Panel Data (2003-2010)

The trade-off between increasing income and environmental degradation has long been a topic of concern for economists. The environmental Kuznets curve theory posits an inverted U-shaped relationship between income and environmental damage. Recently, many scholars have argued that the environmental Kuznets curve in fact does not hold, presenting extensive theoretical and econometric reasoning for their conclusions. Other scholars, however, continued to maintain that the EKC is in fact a valid representation of the relationship between income and environmental quality.This study uses data from China’s provinces to model a modified environmental Kuznets curve for sulfur dioxide emissions. The modified model incorporates proxy variables to account for additional effects posited in recent literature. Issues addressed include the pollution haven effect, environmental policy, the need for panel data and the possibility of a unit root in the data. Though some aspects theorized to affect the relationship between income and environment could not be incorporated into the model due to endogeneity and low significance as a result of poor proxy data, the initial results appeared very promising. The remaining variables were all significant and of the predicted sign and the R-squared value was very high.In order to protect against drawing conclusions based on potentially spurious regression results, however, further econometric testing was required. Though initial testing indicated the presence of a unit root in some data series and the possibility that the results were spurious, subsequent cointegration analysis allowed for the rejection of the null hypothesis of unit roots in the panels, as no stochastic trend was present in the residuals. It is therefore possible to conclude that the results were not spurious and that the modified EKC is valid and holds significant explanatory power. In addition to income, population and the share of the economy composed of exports and industry significantly and positively impacted the volume of sulfur dioxide emissions. These results held high explanatory power with an R-squared of0.86.