Ahmad NAWAZ*, Muhammad Tariq MAJEED**, and Hafiz Muhammad Abubakar SIDDIQUE***
This study presents the insightful and comprehensive empirical evidence on the impact of income and institutional governance on climate change based on panel data of 203 countries for time series of 1996 to 2017. We have divided the countries into sub-samples of 34 low-income, 101 middle-income and 68 high-income countries by following the World Bank country classification. Econometric analysis is carried out by employing the fixed-effect model in order to incorporate the unobserved heterogeneity among countries, and instrumental variable technique generalised method of moments is applied to tackle the issue of endogeneity. The major contribution of this study involves providing the new empirical evidence on the non-linear impact of institutional governance on CO2 emissions (a proxy of climate change) and conditional impact of income and institutional governance on these emissions. Findings of the present study indicate that there is a robust inverted-U shape relationship between institutional governance and CO2 emissions in all income groups of countries. We have termed this curve as Environmental Governance Curve (EGC).
Keywords: Climate Change, Institutional Governance, CO2, Environmental Governance Curve, Fixed Effect