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Using U.S. state-level data for the period 1973–1994, this study models the relationship between emissions, output and pollution abatement by defining an emissions function, in a manner that is consistent with the residual (emissions) generation mechanism and firms' optimizing behavior. It thus accounts for factors that were previously unaccounted for or addressed only individually. Applications using this comprehensive setting can offer more informed insights for policy-making, something that is particularly useful for developing countries that face the environmental degradation that comes together with the benefits of economic growth. Using nonparametric econometric techniques as well as threshold regression, the empirical results show that there is a positive nonlinear relationship between emissions and output, rejecting an inverted-U type of relationship between the two (the Environmental Kuznets Curve, or EKC). In the absence of abatement the relationship turns around, verifying the arguments in the literature that abatement is one of the driving forces for an EKC to emerge.

In this paper, we examine the effect of emissions, as measured by carbon dioxide (CO 2 ), on economic growth among a set of OECD countries during the period 1981–1998. We examine the relationship between total factor productivity (TFP) growth and emissions using a semiparametric smooth coefficient model that allow us to directly estimate the output elasticity of emissions. The results indicate that there exists a monotonically-increasing relationship between emissions and TFP growth. The output elasticity of CO 2 emissions is small with an average sample value of 0.07. In addition, we find an average contribution of CO 2 emissions to productivity growth of about 0.063 percent for the period 1981–1998. 11 3 1 14