Analyzing asymmetric impact of economic growth, energy use, FDI inflows, and oil prices on CO2 emissions through NARDL approach.

Abstract

Even though numerous studies explore the impact of macroeconomic variables on carbon dioxide (CO2) emissions, only a few existing studies estimate the asymmetric impact and causality. By considering the significance of asymmetries, this study investigates the asymmetric impact of economic growth, energy use, and foreign direct investment inflows on CO2 emissions in India wherein oil prices are included as additional variable. The kinked exponential growth of these variables over the period 1986-2014 is also estimated. To this end, nonlinear autoregressive distributed lag (NARDL) model and asymmetric causality test are used. The results show that increase in economic growth would decrease CO2 emissions, while a reduction in economic growth would increase CO2 emissions which implies an inverted U-shaped link between economic growth and CO2 emissions. The positive and negative shocks in oil prices have a favorable and significant impact on CO2 emissions as well. Furthermore, the energy consumption with positive shock shows a positive and significant impact on CO2 emission. Besides, the findings of foreign direct investment inflows support the pollution heaven hypothesis. In light of these results, this study also suggested some policy implications and future research avenues in the concluding section.