Exploring Granger Causality among CO2 Emissions, Energy Consumption, FDI Inflows and Stocks Traded: Evidences from India

Abstract

Climate change is a pressing issue across the globe that threatens life, development and the economy. Development is in itself is a holistic term which necessitate fundamental modifications in economic, social, ecological, political and other associated systems. For this development and particularly for economic development, humans interact with the environment and allocate scarce resources. Accordingly, this has resulted into ecological imbalances which have contributed into environmental degradation and thereafter global warming. In this background, this paper tries to explore the causal relationship among the macro-economic variables and CO2 emissions which somewhere portrays relationships among financial, economic, industrial growth and environmental degradation. Developed and developing countries partake with environmental degradation for fostering economic and financial growth. Therefore, this paper examines the causal relationship between, CO2 emissions, energy consumption, FDI(foreign direct investment)inflows and stocks traded for India using Granger causality test. The paper aims to investigate whether financial, economic and industrial development is inter-connected with India's energy consumption and carbon emissions. To this aim, time series data covering 1988–2012 period was used. The study concludes that unidirectional causality exists between FDI inflows and CO2 emissions and between stocks traded and CO2 emissions. Further, bi-directional causality was found between FDI inflows and stocks traded.