An environmental Kuznets curve for global forests: An application of the mi-lasso estimator

Abstract

In this study, we employ a Moran's $i$ based Lasso (Mi-Lasso) methodology to address the spatial dependence of an unspecified functional form, investigating the association between a country's economic growth and the rate of deforestation. Our aim is to explore the existence of a forestry environmental Kuznets curve (EKC). Our approach to handling spatial dependence overcomes limitations identified in existing EKC literature. We estimate a series of cross-sectional data models spanning the period from 1990 to 2020 for 146 countries. Our findings indicate a non-linear relationship, revealing a change peak rate of deforestation over time. Additionally, we observe that the income threshold at which the deforestation rate begins to decrease changes over time with differences observed between model specifications. Crucially, our results highlight that failing to account for spatial dependence leads to a significant absolute upward bias in ordinary least squares (OLS) estimates of income and worse model fit.