Testing the environmental kuznets curve hypothesis in Iceland: 1960-2010

The dynamics of economic growth implies a greater energy and natural resource consumption, because this growth needs a higher requirement for fuel and raw materials to fulfill the increase in production which generates economic growth. However a topic of recent interest in the economic sphere is the consequent environmental degradation that comes parallel to this economic growth. This study seeks to establish the relationship between environmental degradation, economic growth, consumption of energy from fossil fuels and trade liberalization in Iceland between the years 1960-2010 in order to find ways to achieve sustainable development. The Environmental Kuznets Curve (EKC) hypothesis is analyzed, checking its central proposal i. e. a greater economic growth will lead to a certain level from which it will generate a reduction of environmental degradation. This hypothesis is tested by applying the Autoregressive Distributed Lag (ARDL) model; finally the results do confirm the existence of a long-term relationship among all the variables proposed.