Threshold cointegration and nonlinear adjustment between CO2 and income: The Environmental Kuznets Curve in Spain, 1857-2007

In this paper we model the long-run relationship between per capita CO2 and per capita income for the Spanish economy over the period 1857-2007. According to the Environmental Kuznets Curve (ECK) the relationship between the two variables has an inverted-U shape. However, previous studies for the Spanish economy only considered the existence of linear relationships. Such an approach may lack flexibility to detect the true shape of the relationship. Our empirical methodology accounts for a possible non-linear relationship through the use of threshold cointegration techniques. Our results confirm the non-linearity of the link between the two above-mentioned variables pointing to the existence of an Environmental Kuznets Curve for the Spanish case.

► We test the EKC hypothesis for the Spanish economy over the period 1857-2007. ► We account for a possible non-linear relationship using threshold cointegration. ► The results confirm the non-linearity of the link between pc CO2 and pc income. ► The results point to the existence of an EKC for the Spanish case.