Consumption of liquefied petroleum gas and the EKC hypothesis in South Asia: evidence from cross-sectionally dependent heterogeneous panel data with structural breaks

Abstract

Economic growth without accounting for the simultaneous environmental deterioration that accompanies the achievements is doubtful to be sustained over time. Thus, global economies in the contemporary era have reached a consensus in aligning their respective growth policies with the environmental welfare aspects. Thus, economic and environmental welfares are envisioned to take place in tandem. However, as per the environmental Kuznets curve (EKC) hypothesis, economic growth in the initial stages can trigger a trade-off between economic and environmental well-beings which, beyond a certain growth threshold, can be expected to be diminished. Hence, it is pertinent to identify the key factors that can attribute to lower environmental hardships alongside economic growth in the long run. Against this milieu, this paper investigates the authenticity of the EKC hypothesis for aggregate and disaggregated greenhouse emissions in the context of six South Asian economies namely Bangladesh, India, Pakistan, Sri Lanka, Nepal and Bhutan. Annual data from 1980 to 2016 is employed to conduct panel data estimation exercises that are robust to handling cross-sectional dependency and structural break issues. Besides, the impacts of liquefied petroleum gas (LPG) use on the economic growth–greenhouse emissions nexus are also explored. The findings from the econometric analyses validate the existence of the EKC hypothesis for both aggregate and disaggregated greenhouse emission figures. Moreover, the country-specific EKC analysis reveals heterogeneity of the EKC findings across the concerned South Asian countries. However, LPG consumption is found to homogenously reduce the greenhouse emissions within all the economies. Finally, the heterogeneous panel causality test results reveal unidirectional causation stemming from economic growth to aggregate greenhouse emissions. Furthermore, statistical evidence regarding bidirectional causality between LPG consumption and aggregate greenhouse emissions and unidirectional causalities running from LPG consumption to carbon dioxide, methane and nitrous oxide emissions are also ascertained. These findings collectively imply that LPG can potentially act as a transitional fuel for the South Asian countries prior to undergoing renewable energy transition. Thus, it is recommended to promote the use of LPG for bridging the existent energy crises and simultaneously mitigating environmental pollution in South Asia.