Carbon footprints and income inequality: a panel data analysis of the 66 largest carbon emitting nations

Abstract

In this study, we delved into the complex interaction between carbon emissions and critical economic and environmental factors using Two-step Sys-GMM Dynamic Panel Data Estimation. Our comprehensive dataset encompassed 66 major carbon-emitting nations spanning 1990-2020, providing a robust analytical foundation. Our key findings revealed a noteworthy positive relationship between income inequality, as measured by the Gini index, and carbon emissions across all models. This implies that higher income inequality is linked to increased carbon emissions, possibly due to consumption disparities and resource utilization. Furthermore, the relationship between income and emissions displayed intriguing dynamics. While income per capita exhibited a positive association with emissions, suggesting that growing economies tend to emit more, the squared income per capita variable showcased an inverted U-shaped pattern. This suggests that emissions increase at a diminishing rate as income levels reach a certain threshold, aligning with the Environmental Kuznets Curve hypothesis. Surprisingly, we observed that rising income inequality contributed to long-term carbon reduction, hinting at potential shifts in consumption behavior driven by environmental policies as nations develop. Our analysis also highlighted the roles of energy consumption and urbanization in elevating emissions, emphasizing the need for energy efficiency and sustainable urban planning. Conversely, a higher share of renewable energy was linked to reduced emissions, underscoring the urgency of transitioning to cleaner energy sources. Furthermore, net foreign direct investment and international trade exhibited positive associations with carbon emissions, emphasizing the environmental consequences of globalization. Our research underscores the potential of targeted policies addressing income inequality to promote social equity while reducing emissions. Striking a balance between economic growth and environmental sustainability remains crucial, given the intricate dynamics between income and emissions.