Is there an environmental Kuznets curve for water use? A panel smooth transition regression approach

Abstract

This paper presents an analysis of the relationship between per capita water use and per capita income for 65 countries, over the period 1962–2008, within the framework of the so-called environmental Kuznets curve (EKC). Consistent with the existing literature, a polynomial fixed effects model is first presented. Then, a logistic Panel Smooth Transition Regression (PSTR) is estimated, obtaining income elasticities. This empirical study yields several important findings. The nexus between water withdrawal per person and per capita GDP is non-linear, showing a peculiar inverted-U with a marked downward limb that dominates the nexus, regardless of the estimation method chosen. On the whole, water use income elasticity clearly decreases throughout the period; nevertheless it exhibits a great variability over the sample, reflecting the divergent patterns of water use depending on the level of income of each country and the time period.