The impact of technological innovations on the environmental Kuznets curve: evidence from EU-27

Abstract

The EKC hypothesis expresses the inverted U-shaped relationship between per capita income and environmental quality. In the literature, the role of technological innovations and income inequality on pollution is a relatively recent discussion in the studies testing the EKC hypothesis. The aim of this paper is to investigate the impact of technological innovations, income inequality, exports, urbanization, and growth on CO2 emissions in EU-27. In addition, while investigating this relationship, exports and urbanization are also considered and panel vector autoregression (PVAR) analysis is applied for the 2005-2019 period. According to the coefficient estimation results, while income inequality, exports, and urbanization increase pollution, technological innovations contribute to environmental quality. Also, the results demonstrated that the EKC hypothesis is invalid in these countries and there is a U-shaped relationship between growth and emissions. The causality test results revealed the presence of unidirectional causality running from all explanatory variables to CO2 emissions. Moreover, impulse-response graphs demonstrated that the reply of emissions to the shocks in the explanatory variables is similar to the long-run coefficient results. In conclusion, all available empirical evidence for this relationship highlights that income inequality and technological innovations should be considered in policy-making processes to ensure environmental quality in EU-27 countries.