The moderating role of energy consumption in the carbon emissions-income nexus in middle-income countries

We examine the role of energy consumption in moderating the carbon dioxide emissions-income nexus in 64 middle income countries and compute the marginal effects of real GDP per capita on carbon dioxide emissions at various levels of energy consumption. To do so, we employ multiplicative interaction models because the traditional quadratic Environmental Kuznets Curve model cannot capture the marginal effects. We also use empirical techniques that can account for cross-sectional dependence, such as the Westerlund cointegration test and the Augmented Mean Group estimator. While the marginal effects of GDP on carbon dioxide emissions at the minimum, mean and maximum levels of energy consumption are 9.996, 9.210 and 8.452, respectively, we find no significant evidence that energy consumption moderates the relationship between income and carbon emissions in the panel. However, when we focus on specific countries, we find that energy consumption moderates the nexus between carbon emissions and income in roughly one-third of our sample and that the moderating effect is negative in about one fifth of the sample. We conclude with a discussion on why the moderating effect of energy consumption on the carbon emissions-income nexus differs between countries and offer some policy recommendations that are grounded in the main findings.