Energy production and trade openness: Assessing economic growth, CO2 emissions and the applicability of the cointegration analysis

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The relationship between economic activities such as energy production, trade, and economic growth affects all areas of human life in terms of well-being, as well as a country's economic activities. In this study, we investigate these relationships using cointegration regression methods (FMOLS - fully modified ordinary least square and DOLS - dynamic ordinary least squares), we use the electricity production (hydro, natural gas and renewables), trade opening, GDP, and CO2 emissions to establish causality. We found that electricity generation, GDP and trade liberalization have both positive and negative effects on Brazil's economy. We also discovered a bi-directional causality between trade openness and all the energies produced in Brazil. Separately, we observed that GDP, hydropower, and renewables have negative effects on the CO2 emissions model, while only emissions of pollution and trade openness have positive effects on the economic growth model. These results have important policy implications for the Brazilian economy that does not support appropriate long-term sustainable development strategies. Consequently, policymakers should consider implementing appropriate management capacity to encourage the use of renewable energy and to benefit from the positive effects of economic growth and environmental policies to control the pollution rate through the potential of available natural resources. Our findings are not motivated by discrepancies or sample selection and survive multiple specifications, allowing to observe the relationship with great accuracy. Some diagnostic tests have been applied to show that it is not misleading.