Smooth transition pollution-income paths

We explore the idea of regime switching as a new methodological approach in the analysis of the emission-income relationship. The basic idea is that when some threshold is passed, the economy could move smoothly to another regime, with the emission-income relationship being different between the old and the new regime. The methodology is applied to a panel dataset of US state-level sulfur dioxide and nitrogen oxide emissions. Sulfur dioxide emissions are found to smoothly peak at a relatively late stage of economic development and then smoothly decrease at high levels of income. However, for the nitrogen oxide emissions, environmental pressure tends to rise with economic growth, then slows down but does not decline with further growth. (c) 2005 Elsevier B.V All rights reserved.