Mirroring risk to investment within the EKC hypothesis in the United States

Abstract

In reality, economic expansion cannot be paced-up enough. This account for a potential trade-off between income and environmental degradation that is expectedly feasible at a maximum level of income. On this note, the current study looked at the validity of income-environmental degradation (Environmental Kuznets Curve, EKC) hypothesis especially amidst risk to investment in the United States over the period 1984–2017. Considering that the burning of fossil fuels constitutes the largest source of Greenhouse gas (GHG) in the United States, this study employed energy carbon emissions as a proxy for environmental quality and as a dependent variable. While the study employed renewable energy production as additional explanatory variable, it implemented the Autoregressive Distributed Lag (ARDL) technique in addition to a set of cointegration techniques. Importantly, the study found that the EKC hypothesis is valid for the case of the United States but not without a non-significant trade-off of risk to investment. Additionally, renewable energy production exhibits a statistically significant and desirable impact on environmental quality in both the short and long-run. In general, the study posited that while environmental sustainability is achievable at maximum level of income, it is likely attainable at the detriment of risk to investment. Hence, this observation should trigger a potential policy mechanism that minimizes risk to investment in light of the attainment of the country’s sustainable development goals (SDGs).