The Impact of Renewable Energy, Urbanization, and Environmental Sustainability Ratings on the Environmental Kuznets Curve and the Pollution Haven Hypothesis

The impacts of renewable energy adoption and environmental sustainability ratings on the validity of the environmental Kuznets curve and the pollution haven hypothesis are examined using annual balanced panel data from 64 middle and low-income countries and spanning the 2005-2014 period. We show that the GDP per capita/CO2 emissions per capita relationship is an inverse S curve for the full sample of low and middle-income countries and for each subsample. The renewable energy/CO2 emissions per capita relationship is an inverse N curve for the full and the middle-income samples, but a V curve for the low-income sample. The foreign direct investment net inflows/CO2 emissions per capita relationship is an N curve for the full and the middle-income samples, and a positive relationship in the low-income subsample. High levels of government environmental sustainability ratings in low-income countries with relatively higher incomes can attract foreign direct investment net inflows while reducing pollution. In contrast, middle-income countries with high environmental sustainability ratings can attract foreign direct investment net inflows only if they allow small increases in pollution.