Abstract: This research explores the relationship between digitalization, human capital, economic growth and CO2 emissions to find evidence of the inverted U-shaped environmental Kuznets curve hypothesis. The paper tests the environmental Kuznets curve hypothesis with a Panel Smooth Transition Regression (PSTR) that allows for time and unit varying coefficient estimates within two regimes in the extended framework that includes human capital and digitalization variables beyond the country’s income level measured in GDP per capita. The study covers 55, primarily developed and developing economies for the period 1996-2019. The analysis finds support for the environmental Kuznets curve hypothesis and detects that CO2 emissions have an inverted U-shaped relationship with income level and digitalization, and that this nonlinear relationship transitions smoothly in the exogenous R&D output level. The threshold at which the transition function makes a shift between the two regimes is 41.2, which is the R&D metric representing the number of total patents for all technological inventions per million inhabitants.

Keywords: Panel Smooth Transition Regression (PSTR), Carbon dioxide emissions, Digitalization, Human capital, Environmental Kuznets curve, Panel data

The public research seminars of the Department of Economics and Finance (DEF) at Tallinn University of Technology  usually take place on the second and fourth Wednesdays of the month in both onsite and online format, unless announced otherwise. The presentation will last approximately 45 minutes followed by 15 minutes of discussion. The seminars are held in English. Copies of the paper are usually made available at the seminar. The DEF seminar series is organised in collaboration with the project ”Individual Behaviour and Economic  Performance: Methodological  Challenges and Institutional Context” (IBEP), which has received funding from the European Union’s Horizon 2020 Research and Innovation programme under Grant Agreement No 952574. Questions about the seminar can be sent to the IBEP seminar coordinator Kadri Männasoo, kadri.mannasoo@taltech.ee.