The effect of urbanization on CO2 emissions in emerging economies

- Conceptually the impact of urbanization on CO2 emissions is indeterminate.
- Use recently developed heterogeneous slope coefficient panel regression techniques.
- Increasing affluence increases CO2 emissions.
- Increasing energy intensity increases CO2 emissions.
- Urbanization has mostly a statistically insignificant impact on CO2 emissions.

The theories of ecological modernization and urban environmental transition both recognize that urbanization can have positive and negative impacts on the natural environment with the net effect being hard to determine a priori. This study uses recently developed panel regression techniques that allow for heterogeneous slope coefficients and cross-section dependence to model the impact that urbanization has on CO2 emissions for a panel of emerging economies. The estimated contemporaneous coefficients on the energy intensity and affluence variables are positive, statistically significant and fairly similar across different estimation techniques. By comparison, the estimated contemporaneous coefficient on the urbanization variable is sensitive to the estimation technique. In most specifications, the estimated coefficient on the urbanization variable is positive but statistically insignificant. The implications of these results for sustainable development policy are discussed.