Environmental Kuznets Curve applications for water pollution in the EU

Understanding the relationship between economic activity and water quality is critical for addressing the challenges posed by climate change. This study investigates the Environmental Kuznets Curve (EKC) hypothesis for water pollution using an unbalanced panel of eighteen European Union (EU) countries from 2000 to 2021. We estimate the effects of sectoral GDP on biological oxygen demand (BOD) to quantify the contributions of five goods-producing sectors to water pollution. To capture the role of water availability, we classify countries according to a binary water stress indicator, allowing separate analyses for water-stressed and non-water-stressed contexts. The empirical results provide heterogeneous evidence of an EKC across countries in all sectors. Specifically, the water-stressed countries exhibit monotonically decreasing relationships between sector GDP and water pollution. The non-water-stressed countries exhibit more varied results, with the manufacturing and industry sectors presenting an EKC while the agricultural sector provides evidence for a monotonically increasing relationship with water pollution. The models exhibit strong explanatory power, with high adjusted R² values and high statistical significance across coefficients. These findings suggest that sectoral responses to water stress significantly influence the relationship between GDP and water pollution in the EU. This highlights the importance of targeted policy interventions and environmental regulations to improve water quality across the EU.