Environmental Kuznets Curve

cointegration Classical regression analysis assumes that the error term in a regression is normally and independently distributed. An extreme violation of this condition is when the error term is a random walk. Such a regression is termed a spurious regression and the results are not reliable. It usually indicates that a required variable with random walk behavior has been omitted from the model or that the variables in the model follow random walks and are not related to each other. consistent estimation May show bias and inefficiency, but both are reduced toward zero as the sample size increases. developed economies Countries with high income levels; typically have an income per capita greater than U.S. $10,000, life expectancy greater than 70 years, and literacy rates greater than 95%. developing economies Countries with lowand middleincome levels; equivalent to the term ‘‘Third World.’’ econometrics The specialized branch of mathematical statistics applied to the analysis of economic data. economic growth An increase in economy-wide economic production usually measured by an increase in gross domestic product; also, the process of the economy growing over time. environmental degradation Any human-caused deterioration in environmental quality. externality When a production or consumption activity has unintended damaging effects, such as pollution, on other firms or individuals and no compensation is paid by the producer or consumer to the affected parties (negative externality); when activities have beneficial effects for others, such as freely available research results, and the recipients do not pay the generator of the effect (positive externality). heteroskedasticity When the variance of the error term in a regression model varies systematically across observations or cases. income elasticity The percentage increase in some variable when income increases by 1%. income per capita Usually computed as the gross national product of a country for one year divided by the total population. integrated variable A random walk is an integrated variable—the current value is equal to the previous period’s value plus a random shock. This means that the effect of these shocks on the future does not decline over time. Rather, the current value of the variable is an integration of all past shocks. omitted variables bias Occurs when variables that should be in a regression model are omitted and they are correlated with those variables that are included. panel data A data set that includes observations of a number of individuals, countries, firms, and the like over a number of time periods such as months or years. simultaneity bias When there is mutual feedback between two variables and ordinary regression analysis cannot provide consistent estimates of model parameters. sustainable development If the current average well-being of people could be maintained into the indefinite future. technological change The invention and introduction of new methods of production as well as new products.