Using the following cubic model specification to show the relationships between pollution and income, Eit = β0 + β1Yit + β2Y2i t + β3Y3it + β4Zit + ε, which of the following is accurate concerning the parameters β1, β2, and β3?

Question

Quizplus · Accepted Answer

CAn N-shaped relationship between income and pollution is obtained when β1 > 0, β2 < 0, and β3 > 0, as this implies that pollution initially increases with income, decreases at a certain point, and then increases again. An Environmental Kuznets Curve (EKC) or inverted U-shaped relationship is implied when β1 > 0, β2 < 0, and β3 = 0, indicating that pollution rises with income up to a point and then begins to decrease as income continues to increase.

Using the Following Cubic Model Specification to Show the Relationships