Abstract
This paper examined the causal relationship between economic growth and carbon dioxide emissions (CO2) in Rwanda using annual data from 1960–2014. The study was conducted within the framework of the environmental Kuznets curve (EKC) hypothesis using the rolling-window bootstrap Granger causality test approach with a rolling-window size of 15 years. The methodology allows for non-constancy in the parameters of the vector autoregression (VAR) model in the short run as well as in the long run. The study found bi-direction causality between the real gross domestic product (GDP) and CO2 emissions in metric tons per capita. The results from the rolling-window bootstrap Granger causality test show that GDP negatively influenced CO2 emissions in the 1976–1977, 1990–1993, 2005–2006, and 2007–2013 sub-sample periods. This result depicts a monotonically decreasing EKC, contrary to the standard EKC relationship. The downward-sloping EKC was explained by the transition of the Rwandan economy from an industrial-based economy to a service-based economy. Further, a feedback effect from CO2 emissions to the economy was established.
Highlights
The alarming rate of environmental degradation has caught the attention of stakeholders, researchers, and policymakers across the globe over the past decades
The authors found a monotonically increasing environmental Kuznets curve (EKC), which is contrary to the standard EKC relationship. [15] explored the long-run dynamic relations between economic growth, energy use, population density, trade, and pollutants across Japan, South Korea, Brazil, China, Egypt, Mexico, Nigeria, South Africa, and France, respectively
To ensure the reliability and validity of the EKC hypothesis, there is a need for a robust methodology that takes into account the shortcomings of previous methodologies. It is in this regard that this paper examines the causal links between economic growth and carbon dioxide emissions in Rwanda during the period 1960-2014 by the application of bootstrap rolling-window bootstrap Granger causality test technique
Summary
The alarming rate of environmental degradation has caught the attention of stakeholders, researchers, and policymakers across the globe over the past decades. History records that formal discussions on the nature of the functional relationship between the economy and the environment began with the work of [1], who, disagreeing with the earlier school of thought that proposesd a linear relationship, proposed a non-linear relationship between economic growth and environmental degradation. This new discovery was later formalized by [2] as the environmental Kuznets curve hypothesis, or the EKC hypothesis. The validation of the EKC hypothesis requires that in an empirical EKC model with an indicator of environmental pollution as a dependent variable and GDP and its square as independent variables the parameters of GDP and its square should be positive and negative, respectively, and be statistically significant
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