Does economic development always clean water in ASEM countries? Nonlinear evidence from dynamic panel kink regression

Abstract

This study aims to re-examine the Environmental Kuznets Curve (EKC) for water pollution across 39 ASEM countries over the period 2008–2021. Rather than focusing solely on income, the analysis incorporates financial development, industrial structure, and urbanization to provide a more comprehensive assessment of the development–environment nexus. A dynamic panel kink regression model is employed to capture potential nonlinearities in the relationship between these variables and water pollution. The empirical results provide limited support for the existence of an N-shaped EKC. Income growth and urbanization are consistently associated with reductions in water pollution, whereas financial development exhibits a U-shaped relationship, and industrial structure follows an inverted U-shaped pattern across different regimes. The estimated kink points further reveal critical stages at which the environmental effects of these variables change. These findings indicate that the relationship between economic development and water pollution is inherently multidimensional and varies across development stages, thereby challenging the general applicability of the EKC hypothesis. From a policy perspective, the results highlight the importance of adopting differentiated environmental and development strategies that account for the heterogeneous effects of economic factors on environmental outcomes, including targeted financial regulation, structural transformation toward cleaner sectors, and sustained investment in urban infrastructure and wastewater management.