Fractional Integration Versus Structural Change: Testing the Convergence of hbox {CO}_{2} Emissions

Marco R Barassi,Yuqian Zhao,Nicola Spagnolo

doi:10.1007/s10640-017-0190-z

Abstract

This paper assesses the stochastic convergence of relative hbox {CO}_{2} emissions within 28 OECD countries over the period 1950–2013. Using the local Whittle estimator and some of its variants we assess whether relative per capita hbox {CO}_{2} emissions are long memory processes which, although highly persistent, may revert to their mean/trend in the long run thereby indicating evidence of stochastic convergence. Furthermore, we test whether (possibly) slow convergence or the complete lack of it may be the result of structural changes to the deterministics of each of the relative per-capita emissions series by means of the tests of Berkes et al. (Ann Stat 1140–1165, 2006) and Mayoral (Oxford Bull Econ Stat 74(2):278–305, 2012). Our results show relatively weak support for stochastic convergence of hbox {CO}_2 emissions, indicating that only between 30 and 40% of the countries converge to the OECD average in a stochastic sense. This weak evidence disappears if we enlarge the sample to include 4 out of the 5 BRICS, indicating that our results are not robust to the inclusion of countries which are experiencing rates of growth which are far larger than those of the OECD members. Our results also decisively indicate that a slow or lack of convergence is not the results of a structural break in the relative hbox {CO}_{2} emissions series.

Highlights

The increasingly strong evidence of climate change has determined a growing concern on the impact of economic activities on global climate change over the last two decades
The literature has mostly found that per capita CO2 emissions have a direct and positive relationship with per capita income2. These studies do not say much about the spatial distribution of CO2 emissions and the way that this may evolve over time
This paper focuses on investigating the stochastic convergence of CO2 emissions

Summary

Introduction

The increasingly strong evidence of climate change has determined a growing concern on the impact of economic activities on global climate change over the last two decades. These studies do not say much about the spatial distribution of CO2 emissions and the way that this may evolve over time It may not be of significant importance from the point of view of the impact on the environment, the spatial distribution of CO2 emissions has significant implications for climate change modelling and especially for the success of negotiations in multilateral climate agreements (Aldy 2006). For these reasons, more recently, building on the literature on income convergence, a seemingly rich body of literature on convergence of CO2 emissions has developed (see Pettersson et al 2014 for a review)

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