The inverted n-shaped relationship between economic growth and CO2 emissions: Evidence from OECD countries

Modern economic growth has led to increased levels of international trade, large-scale industrialisation, and major technological advancements, resulting in substantial negative externalities on a global scale. Among these, environmental degradation has emerged as a significant global public bad. Balancing economic growth objectives while addressing environmental challenges remains a critical issue for modern society. This study examines the relationship between economic growth and environmental degradation across 33 OECD countries during the period 1996-2015, employing a fixed effects model with the Driscoll-Kraay standard error estimation approach. The analysis reveals an inverted N-shaped relationship between economic growth and CO? emissions, contradicting the conventional environmental Kuznets curve theory. The results also show that renewable energy consumption and stronger institutional quality help reduce CO? emissions, while non-renewable energy consumption and higher levels of industrial activity have the opposite effect.