A multivariate cointegration analysis of the macroeconomic determinants of carbon emissions in Malaysia

This study examines dynamic interrelationships and causality relationships among CO2 emissions, economic, political and financial variables over the period of 1971-2011 for the case of Iran as one of the top CO2 emitting countries in the world. The results of ARDL and Johansen cointegration approaches confirm the existence of long run relationship among CO2 emissions, energy consumption, GDP, financial development, trade openness and political development. The results of variance decomposition analysis show that energy consumption, GDP and democracy can explain the big parts of the CO2 variations in the first year after initial shock but after ten years the roles of financial development, trade openness and energy consumption are more important. The estimation of long run and short run equations using ARDL approach indicates that the effects of GDP and energy on CO2 emissions are positive in both long run and short run. The effects of democracy although are minor but they are negative in short run and positive in long run. Our results confirm the existence of an inverted U-shaped relationship between trade openness and CO2 emissions and also a U-shaped relationship between CO2 emissions and financial development both in long run and short run.

This paper assesses the relationship between carbon emissions, economic growth and, energy consumption, in USA and China from the perspective of Granger causality, in a multivariate framework controlling for financial development, urbanization, and trade openness. Econometric techniques employed include unit root tests, Toda and Yamamoto Granger causality, and generalized impulse response and variance decomposition analysis for the time horizon 1980–2017. Test results indicate that governments of the USA and China cannot implement sturdier strategic energy policies in the long run without inhibiting the growth of the economy because of the bidirectional causative linkage between economic growth and energy use. A causal link does not exist between carbon emissions and financial development for both countries. Nevertheless, in the USA, there exists a unidirectional Granger causality controlling from energy consumption to financial development. In both economies, urbanization Granger causes CO2 emissions and energy use but the reverse does not hold. An upsurge in energy consumption and carbon emissions will lead to a surge in trade openness but not vice versa for China. A noteworthy result is that there is a substantiation of unidirectional causality from energy consumption to carbon emissions in both countries. In the USA, impulse response and variance decomposition analysis disclosed the effect of financial development is projected to have diminutive magnitude whiles in the future, energy use, economic growth, trade openness, and urbanization would influence carbon emissions significantly. The impacts of trade openness and financial development are expected to be of little importance in China. The general findings implied that urbanization, economic growth, and energy consumption influenced CO2 emissions significantly in the USA and China. Understanding these similar and contrasting situations is essential to reaching a global agreement on climate change affecting IMF’s top 2 biggest economies.

The problem of climate change, which causes various negativities in the global sense, is one of the important research topics. It is necessary to determine the factors affecting carbon dioxide (CO2) emissions, which are the main determinants of climate change, and to take measures for this. In this study, based on the hypothesis that economic growth, energy usage, trade openness, and foreign direct investment affect CO2 emissions, it was aimed to examine the effects of economic growth, energy usage, trade openness, and foreign direct investment on CO2 emissions for G8 countries using annual data for the period 1990-2018. For this purpose, first, a literature review was done in the study. Then, cross-section dependency and heterogeneity tests were performed as empirical analyses. Afterward, unit root tests, cointegration analyses, and causality analyses were performed in the study. Finally, in the study, short-term parameters and long-term parameters were estimated to capture possible dynamic relationships between variables. The Westerlund Error Correction Model (ECM) panel test for cointegration showed that there is a cointegration relationship between these variables for both the entire panel and the cross-section units. The results of the Augmented Mean Group (AMG) estimator method showed that (i) economic growth has no effect on CO2 emissions in 7 of 8 countries, (ii) energy usage increases CO2 emissions in 4 of the countries studied but decreases it in one of them, and (iii) foreign direct investments and trade openness do not affect CO2 emissions in 4 countries but positively affects in 2 countries and negatively in 2 countries. According to the results obtained from the Pooled Mean Group (PMG) analysis, while economic growth, energy usage, and trade openness affect CO2 emissions in the long run, economic growth, energy use, and trade openness affect CO2 emissions in the short run too. According to Dumitrescu-Hurlin panel causality results, it was seen that there is no causal relationship between CO2 emissions, economic growth, and energy use. While there is a unidirectional causality from CO2 emissions to foreign direct investments, it was determined that there is a bidirectional causality between trade openness and CO2 emissions. When the results were examined in general, it was understood that the variables of economic growth, trade openness, foreign direct investment, and energy usage are effective on CO2 emissions in the G8 countries. It would be beneficial for countries to include the objectives of making production with clean production technologies, ensuring efficient use of energy, and expanding the use of renewable energies among their main targets.

The scholars of environmental economics have attempted the investigation of the impact of foreign direct investment-growth nexus, but they have missed the essential role played by technological innovation and financial development regarding the environmental costs. The notable economic growth and the consequent speedy process of urbanization in BRICS countries have brought about colossal escalation of energy needs leading to environmental degradation. The present study endeavors to explore the effect of foreign direct investment, technological innovation, and financial development on carbon emissions in BRICS member countries, with data from 1990 to 2017. The results verify a strong cross-sectional dependence within the panel countries. The Augmented Mean Group (AMG) estimator shows that foreign direct investment, technological innovation, and financial development in the BRICS countries possess a negative and statistically significant long-run association with CO2 emissions, while economic growth, trade openness, urbanization, and energy use are found to contribute statistically significant and positive with carbon emissions. The current study chose to employ the Dumitrescu and Hurlin panel causality test for examining the direction of causality. Findings reveal a bidirectional long-run causality running among financial development, economic growth, trade openness, urbanization, energy use, and CO2 emissions; on the contrary, unidirectional causality is found between foreign direct investment and carbon emissions. Consequently, for the BRICS member countries, the development of industries, financial institutions, and development of technological innovation are required to attract quality foreign direct investment. Moreover, urbanization contributes enormously to environmental degradation and necessitates urgent policy responses in these countries.

This study examines the impact of economic growth, energy consumption, trade openness, financial development on carbon emissions for the case of Turkey by using annual time series data for the period of 1960-2013. The Lee and Strazicich test suggests that the variables are suitable for applying the bounds testing approach to cointegration. The cointegration analysis reveals that there exists a long-run relationship between the per capita real income, per capita energy consumption, trade openness, financial development, and per capita carbon emissions in the presence of structural breaks. The results show that in the long run, carbon emissions are mainly determined by economic growth, energy consumption, trade openness, and financial development. The VECM Granger causality analysis indicates a long-run unidirectional causality running from economic growth, energy consumption, trade openness, and financial development to carbon emissions. The findings also show that the EKC hypothesis is valid for Turkey both in the long run and short run. The study provides some implications for policy makers to decrease carbon emissions in Turkey.

Is the long-run relationship between economic growth, electricity consumption, carbon dioxide emissions and financial development in Gulf Cooperation Council Countries robust?

Of recent times many countries are suffering from environmental problems such as global warming and emission of greenhouse gases. Emissions of carbon dioxide as been recognized as the major contributor to global warming and climate change. This paper examines the long run relationship among the variables environmental quality, financial development and economic growth in Kenya using time series for the period 1970-2019. Autoregressive distributed lag bounds test is used to investigate long run relationship and Granger causality method is used to test for causality among the variables. Empirical results indicate that there is long-run relationship among the variables. Long run results suggest that increases in financial development, lagged CO 2 , energy consumption, population growth, and trade openness significantly worsens environmental quality in Kenya. Natural resources significantly improve environmental quality in Kenya. According to the results the relationship between CO 2 and financial development in Kenya is non-linear suggesting presence of EKC between CO 2 and financial development. The empirical results confirm that the Environmental Kuznets curve does not exist between CO 2 and economic growth in Kenya in the long run. Short-run results also show that financial development, lagged CO 2 , FDI, population growth, and trade openness increase CO 2 emissions while natural resources reduce it. Causality results show unidirectional causality running from financial development to environmental quality and from CO 2 to GDP. According to the findings, there is evidence of neutrality hypothesis between financial development in Kenya and economic growth. Existence of long run relationship suggests that the government of Kenya needs to implement appropriate environmental policies that reduce pollution during economic growth. The government should set policies and guidelines to the financial sector so that the sector offers credit to firms that reduce air pollution. Keywords : Financial development, economic growth, CO 2 , Autoregressive distributed lag model, Kenya JEL Classification: E44, C32, Q43, Q56 DOI: 10.7176/JESD/11-12-03 Publication date: June 30th 2020

We determine the possible impacts of changes in financial development on carbon dioxide (CO2) emissions in Jamaica for the period 1980 to 2018, with special attention given to the possible existence of asymmetries in this relationship. There are three major findings. First, there is a unique cointegrating relationship among the variables where CO2 emissions are a function of financial development, real domestic economic activity, and trade openness. Financial development negatively impacts CO2 emissions in this relationship, even though CO2 emissions are impacted positively by rising levels of real domestic economic activity and trade openness. Second, there is an asymmetric impact of changes in financial development in the long run and short run on changes in CO2 emissions. Third, positive and negative changes in financial development Granger cause CO2 emissions in the short run. One policy implication of these findings is that strengthening the negative relationship between CO2 emissions and financial development could lessen the increase in CO2 emissions associated with rising levels of real domestic economic activity.

Do green technology innovations, financial development, and renewable energy use help to curb carbon emissions?

The leading cause of global climate change and warming is greenhouse gas emissions. In developing economic activities, energy plays an important role, and human activities are responsible for climate change, carbon dioxide (CO2) emissions adverse impacts on the environment. This study investigates carbon dioxide emissions from liquid fuel consumption on CO2 emissions rather than total energy consumption. Carbon dioxide (CO2) emissions have a causal relationship of CO2 emissions from liquid fuel consumption (CO2L), industry (IND), economic growth (GDP), and trade openness (TR). The ARDL bound method incorporates the structure break and Granger causality method to measure the long-run and short-run cointegration relationship between the variables based on annual data from 1971 to 2016 Malaysia. Both the augmented Dickey-Fuller and Phillips-Perron analysis also supported exploring the study variables' stationarity. The long-run forecasts indicate that CO2L, IND, TR, and GDP are significantly related to CO2 emissions. The error correction term (ECT) value was -0.952, revealing that CO2 emissions diverged from a short-run to long-run equilibrium by 95.2% each year. Furthermore, the Granger causality test shows bidirectional causality between trade openness and CO2L. A unidirectional causality runs from the trade openness to industry at a 1% level form. The current study aims to find out the relationship between carbon dioxide emissions, economic growth, energy consumption, and trade in Malaysia to fill this scientific gap. Based on this study's results, the government needs effective policies and initiatives to identify Malaysia's ecological issues. It is also essential to determine the basic target of Malaysia's consumption of liquid fuel and its environmental mitigation policies.

Reduction of carbon dioxide (CO2) emissions is one of the biggest challenges for global sustainable development, in which economic growth characterized by industrialization plays a formidable role. We innovatively adopted the input and output (I-O) table of 41 countries released by World I-O Database to determine the industrial structure change and analyze its impact on CO2 emission evolution by developing a cross-country panel model. The empirical results show that industrial structure change has a significantly negative effect on CO2 emissions; to be specific, 0.1 unit increase in the linkage of manufacturing sector and service sector will lead to a decrease of 0.94 metric tons per capita CO2 emissions, indicating that upgrading industrial structure contributes to carbon mitigation and sustainable development. Further, urbanization, technology and trade openness have significantly negative impact on CO2 emissions, while economy growth and energy use take positive impacts. In particular, a 1% increase in per capita income will contribute to an increase of 8.6 metric tons per capita CO2 emissions. However, the effect of industrial structure on environment degradation is moderated by technology level. These findings fill the gaps of previous literature and provide valuable references for effective policies to mitigate CO2 emissions and achieve sustainable development.

The impact of financial development, income, energy and trade on carbon emissions: Evidence from the Indian economy

PurposeThis study aims to fill the gap in existing studies that have analyzed the drivers of carbon dioxide (CO2) emissions. The author investigate the long-run effects of energy types, urbanization, financial development and, the interaction between urbanization and financial development on CO2 emissions.Design/methodology/approachStochastic impacts by regression on population, affluence and technology model served as the framework for empirical modeling. Using annual time-series data for Tunisia, autoregressive distributed lag bounds test was used to examine the cointegration of the variables. Also, the fully modified ordinary least squares was used to estimate the emission effect of the explanatory variables. Further investigations were done using the principal component analysis and variance decomposition analysis.FindingsIncome, urbanization, trade and financial development exert upward pressure on CO2 emissions. However, the interaction between urbanization and financial development reduces the emission of CO2. Furthermore, primary energy use, energy intensity, electricity consumption and fossil fuel consumption have positive effects on carbon emission, while combustible renewables and waste, and electricity production from natural gas have negative effects on carbon emission.Practical implicationsThe policy implication/recommendation indicates that the financial sector’s authorities can combat carbon emission by properly regulating the development and activities of the financial sector in urban areas in Tunisia. The promotion of the development and usage of cleaner energy is recommended to help reduce carbon emission. Policymakers need to promote environmentally friendly economic growth and development agenda.Originality/valueThe contribution of this study to the environmental degradation literature is that it offers evidence from Tunisia, which has not received much empirical attention. It also examines the effect of various forms of energy usage on carbon emission. To the best of the author’s knowledge, this is the first study to examine the interaction effect between urbanization and financial development on carbon emission. Also, if not the first, this study is among the earliest to use the principal component analysis as a part of the prediction of the carbon emission effect of energy variables.

Carbon emission, energy consumption, trade openness and financial development in Pakistan: A revisit

Financial development is the key for economy evolution as financial intermediaries could foster productivity growth and capital accumulation which lead to the economic growth. The nexus between financial and economic growth is an issue that has long been debated. On the one hand, a stream of literatures offer support to the contention on the running causality from financial development towards economic growth while on the other hand, economic variables are found to foster the financial institutions. Therefore, this study aims to investigate the relationship between financial development and economic growth in Malaysia over the period of 1990 to 2013. The research methods adopted are Johansen cointegration test to check the existence of short term and long term relationship between variables used and Granger causality test to determine the relationship direction for the different variables used. The study finds evidence of a long-run relationship between financial development and economic growth, amid a running causality between economic growth to all indicators of financial development in Malaysia with the exception of financial system deposit. The results imply economic growth can be further developed as it stimulates the development of financial indicators