Do Oil Consumption and Economic Growth Intensify Environmental Degradation? Evidence from Developing Economies

Abstract

The purpose of this paper is to empirically investigate the impact of economic growth, oil consumption, financial development, industrialization and trade openness on carbon dioxide (CO2) emissions, particularly in relation to major oil-consuming, developing economies. This study utilizes annual data from 1980 to 2012 on a panel of 18 developing countries. Our empirical analysis employs robust panel cointegration tests and a vector error correction model (VECM) framework. The empirical results of three panel cointegration models suggest that there is a significant long-run equilibrium relationship between economic growth, oil consumption, financial development, industrialization, trade openness and CO2 emissions. Similarly, results from VECMs show that economic growth, oil consumption and industrialization have a short-run dynamic bidirectional feedback relationship with CO2 emissions. Long-run (error correction term) bidirectional causalities are found among CO2 emissions, economic growth, oil consumption, financial development, and trade openness. Our results confirm that economic growth and oil consumption have a significant impact on the CO2 emissions in developing economies. Hence, the findings of this study have important policy implications for mitigating CO2 emissions and offering sustainable economic development.