Abstract
This paper examines the relationship between the logarithms of carbon dioxide (CO2) emissions and real Gross Domestic Product (GDP) in China by applying fractional integration and cointegration methods. These are more general than the standard methods based on the dichotomy between stationary and non-stationary series, allow for a much wider variety of dynamic processes, and provide information about the persistence and long-memory properties of the series and thus on whether or not the effects of shocks are long-lived. The univariate results indicate that the two series are highly persistent, their orders of integration being around 2, whilst the cointegration tests (using both standard and fractional techniques) imply that there exists a long-run equilibrium relationship between the two variables in first differences, i.e. their growth rates are linked together in the long run. This suggests the need for environmental policies aimed at reducing emissions during periods of economic growth.
Highlights
China has been experiencing very rapid economic growth in recent decades, and its share of global gross domestic product had risen to 17.39% by the end of 2019; its growth has relied mainly on fossil fuels that generate greenhouse C O2 emissions and as a result China is the largest carbon dioxide emitter in the world (Gregg et al, 2008; Guan et al, 2009; IEA, 2020)
These have focused on factors that affect Carbon dioxide (CO2) emissions or examined the evidence on the environmental Kuznets curve (EKC), whilst the present study analyses the persistence of the two series and their linkages using fractional integration and cointegration methods, respectively
As a first step we examine the orders of integration of the two individual series under examination, i.e. of the logs of CO2 emissions and real Gross Domestic Product (GDP), respectively
Summary
China has been experiencing very rapid economic growth in recent decades, and its share of global gross domestic product had risen to 17.39% by the end of 2019; its growth has relied mainly on fossil fuels (coal and oil) that generate greenhouse C O2 (carbon dioxide) emissions and as a result China is the largest carbon dioxide emitter in the world (Gregg et al, 2008; Guan et al, 2009; IEA, 2020) Given both its economic size and the level of its CO2 emissions, this country represents a interesting case to analyse the relationship between economic growth and the environment. These have focused on factors that affect CO2 emissions or examined the evidence on the EKC, whilst the present study analyses the persistence of the two series and their linkages using fractional integration and cointegration methods, respectively
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