Does Globalisation Worsen Environmental Quality in Developed Economies?

Abstract

We examine the causal relationship between globalisation and CO2 emissions for 25 developed economies in Asia, North America, Western Europe and Oceania using both time series and panel data techniques, spanning the annual data period of 1970–2014. Because of the presence of cross-sectional dependence in the panel, we employ Pesaran’s Journal of Applied Econometrics 22, 265–312 (2007) cross-sectional augmented panel unit root (CIPS) test to ascertain unit root properties. The Westerlund Oxford Bulletin of Economics and Statistics 69, 709–748 (2007) cointegration test is also used to ascertain the presence of a long-run association between globalisation and carbon emissions. The long-run heterogeneous panel elasticities are estimated using the Pesaran Econometrica, 74(4), 967–1012 (2006) common correlated effect mean group (CCEMG) estimator and the Eberhardt and Teal Productivity analysis in global manufacturing production (2010) augmented mean group (AMG) estimator. The causality between the variables is examined by employing the Dumitrescu and Hurlin Economic Modelling, 29, 1450–1460 (2012) and Emirmahmutoglu and Kose Economic Modelling, 28, 870–876 (2011) Granger causality tests. The empirical results reveal that globalisation increases carbon emissions, and thus, the globalisation-driven carbon emission hypothesis is valid. This empirical analysis suggests insightful policy guidelines for policy makers using ‘globalisation’ as an economic tool for better long-run environmental policy.