One shape does not fit all: A nonparametric instrumental variable approach to estimating the income-pollution relationship at the global Level

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© 2018 Elsevier B.V. We examine the relationships among water pollution, income, and political institutions using country-level global water quality data over the period 1980 to 2012. In order to address concerns about the highly nonlinear relationship between pollution and income, the endogeneity of income, and the discrete nature of political variables, we use a nonparametric instrumental variable approach that allows for the inclusion of continuous and discrete variables to identify these relationships. Results indicate an inverted-U shaped relationship between pollution and income consistent with an environmental Kuznets curve for one pollutant (lead), a cubic shape for three pollutants (nickel, mercury, and fecal coliform), and more highly nonlinear relationships for many of the other pollutants. For several stock pollutants (nickel, mercury, and arsenic), we find that pollution levels may continue to increase at higher levels of income, suggesting that stock pollutants may continue to accumulate in productive high-income countries even when marginal emissions have been reduced. We also find suggestive evidence that levels of pollutants resulting from industrial activity (e.g., chemical oxygen demand) may increase with income while those that are more driven by residential activity and population levels (e.g., fecal coliform) do not. By estimating a nonparametric relationship between pollution and political institutions and by accounting for the categorical nature of the political variables, we are able to detect a nonlinear relationship between pollution and political institutions as well, which for some pollutants is an inverted-U shaped curve.

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Water Resources and Economics

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