I am making a modified environmental Kuznet's curve for Iceland, the model I have is:
dependent variable: ln(CO_2_emissions/capita)
independent variables:
ln(GDP/capita)
(ln(GDP/capita)^2
ln(import+export/GDP) (variable for openness to trade)
ln(cars/capita)
ln(energy use heavy industry)
I get a poor value for my Ramsey's reset test, suggesting there is something wrong with the model, any suggestions on how I can fix it?
The only variables that are statistically significant are VLF/person and import+export/GDP
The literature on the environmental Kuznets curve contains a variety of opposing results. You seem to be assuming the Kuznets hypothesis should work, when perhaps, it may not work, particularly in the case you are examining. Thus your data may be implying that the environmental Kuznets hypothesis is inappropriate in the case you are examining. For Iceland, see for example:
https://dialnet.unirioja.es/servlet/articulo?codigo=6413128
Baek, J. 2015. Environmental Kuznets curve for CO2 emissions: The case of Arctic countries. Energy Economic, 50:13-17. (Includes null results for Iceland).
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