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Investigating the environmental Kuznets’s curve for Sweden: evidence from multivariate adaptive regression splines (MARS)

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Abstract

This paper aims to examine the long-run nonlinear relationship between economic growth and CO2 emissions for the Sweden economy by using a long span of annual time-series data over the period of 1850–2008. We applied novel multivariate adaptive regression splines (MARS) model suggested by Friedman (Ann Stat 19(1):1–67, 1991) and also employed threshold cointegration approach suggested by Sephton (Comput Econ 7(1):23–35, 1994) and Sephton and Mann (Energy Econ 36:177–181, 2013a, J Econ Econom 56(2):54–77, 2013b) to investigate the presence of both nonlinear cointegration and asymmetric dynamic adjusting processes between economic growth and CO2 emissions. The results provide the presence of nonlinear cointegration between economic growth and CO2 emissions. The environmental Kuznets curve (EKC) is verified with the estimated turning point in 1970. This rough estimate mainly explained by the implementation of Naturvårdsverket in 1967, the increasing use of nuclear power and the Swedish Environmental Protection Act (Miljöskyddslagen) in 1969. The findings also suggest a three-regime threshold cointegration model for economic growth–CO2 emissions nexus. Thus, the speed of adjustment in emissions function around the long-run equilibrium depends on the threshold behaviour. The adjustment back to attractor is asymmetric: it differs if the disequilibrium is above or below the critical threshold point. The asymmetric adjustment in CO2 emissions is much faster than GDP per capita with 75% response to disequilibrium.

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Notes

  1. The Kuznets curve hypothesis shows that at lower levels of per capita income, income distribution is skewed towards higher-income groups, thereby leading higher-income inequality. Beyond certain threshold level, income level tends to rise, skewness is reduced, and income inequality becomes lower.

  2. Inverted U-shaped EKC indicates that environmental degradation rises at the first stage of economic development but after reaching at ‘critical turning point’, environmental pollution starts declining along with higher economic development.

  3. This is possible for rich economies because a wealthy nation has ability and capacity to invest more on research and development (R&D)-laden new technological progress and in course of time the old technology is replaced by the industrial producers in the process of economic activities while updating new and less-energy-intensive technology. This eventually enables producers to reduce emissions of pollutants or eventually that helps governments of rich economies to improve environmental quality (Komen et al. 1997).

  4. Asymmetric adjustments imply that the EKC hypothesis may allow for a different period of adjustment to the long-run relationship between pollution and income depending on whether emissions are above or below the EKC in the short run. From a policy perspective, environmental regulations imposed by decision-makers are more likely if emissions are too high than the income level. In this case, we may expect any short-run deviations in emissions to be corrected more quickly through environmental regulation, whereas if emissions are below income level, there is no immediate pressure before the authorities to impose any environmental regulation for maintaining long-run equilibrium between the series (Fosten et al. 2012).

  5. In 2001, OCED Environmental Strategy Performance Review revealed that Sweden is one of the few OECD member countries that are in track to meet their commitments under the Kyoto Protocol to limit GHG emissions. Although both attitude and efforts of Sweden government have been remarkable over the review period by looking at the implementation of Naturvårdsverket in 1967 and Environmental Protection Act (Miljöskyddslagen) in 1969, but the environmental performance in terms of reduction of per capita CO2 emissions has not been satisfactory from 1990 to 2011 as the percentage of per capita CO2 emissions is found to be above the projected target of 4% between these periods (World Development Indicators 2011). The possible reason for the Sweden economy not being able to reduce per capita CO2 emissions could be due to the wider use of economic instruments in implementing climate policy rather than using the comprehensive socio-economic analysis (Swedish Environmental Protection Agency and Swedish Energy Agency 2007). This largely motivates us to go for doing a quantitative empirical assessment of the causal linkage between economic growth and per capita CO2 emissions for the Sweden economy within a time-series nonlinear framework.

  6. Fare and Grosskopf (2004) view that zero environmental impact also requires zero production of goods because of the fact that within a production possibility set, good and bad outputs are null joint if production of good outputs cannot be produced without production of bad outputs (pollution levels). This further indicates that society will not prefer full elimination of environmental impact.

  7. Kristrom (2000) argues that most of the EKC studies are not reliable due to the fact that they relatively short time series.

  8. Bolt and van Zanden (2014) generated the historical national account data.

  9. MARS for time series (TSMARS) has introduced by Lewis and Stevens (1991) and has been widely analysed by Keogh (2010).

  10. Hansen (2011) has presented a detailed literature review of the impacts of TAR models on economics by using 75 papers published on this approach.

  11. In the study of Gales et al. (2007), it is found that in the year 1970, the Sweden economy has experienced both energy transition and international oil crisis. Before 1970, firewood was dominant source of energy for the Sweden economy, with roughly 75% of energy in 1850, while food and fodder made up the remaining part. After oil crisis of the 1970s, the Sweden economy has also become more of the coal-based economy. This shows that coal was very much a phenomenon of the twentieth century with the almost total disappearance of traditional energy carriers including firewood, wind and water.

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Acknowledgements

We thank Professor Peter Sephton for providing his MATLAB code and for his useful comments on an early version of this paper.

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Authors and Affiliations

  1. Montpellier Business School, Montpellier, France

    Muhammad Shahbaz

  2. COMSATS University Islamabad, Lahore Campus, Islamabad, Pakistan

    Muhammad Shahbaz

  3. Tunis Business School, Université de Tunis, Tunis, Tunisia

    Naceur Khraief

  4. Department of Humanities and Social Sciences, Indian Institute of Technology, Kharagpur, West Bengal, India

    Mantu Kumar Mahalik

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Shahbaz, M., Khraief, N. & Mahalik, M.K. Investigating the environmental Kuznets’s curve for Sweden: evidence from multivariate adaptive regression splines (MARS). Empir Econ 59, 1883–1902 (2020). https://doi.org/10.1007/s00181-019-01698-1

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