New insights into decoupling economic growth, technological progress and carbon dioxide emissions: Evidence from 40 countries

Abstract

• The macroeconomic fundamentals and material flows have non-linear effects on decoupling. • Economic growth is the main driver of CO 2 emissions. • Stock markets and debt decrease CO 2 emissions, in high-regimes of economic growth and debt. • Technology mitigates CO 2 emissions in regimes of robust growth and low debt, in the European context. Overall, the literature strongly validates the Environmental Kuznets Curve hypothesis and the decoupling of the economy regarding energy intensity and raw materials. However, there is no assessment of whether such evidence derives from the non-linearities of macroeconomic fundamentals from considering a simultaneous supply-demand market perspective of material flows. Therefore, using a sample of 40 countries, we estimated a Panel Smooth Transition Regression model for the period between 1994 and 2016. The results showed that economic growth and material flows are the drivers of CO 2 emissions. They also showed that stock markets and debt issuance reduce CO 2 emissions in high regimes, and the preponderant technological progress in the European context, mainly on the demand side and in high-regimes of economic growth and low-debt regimes, contribute to reductions in CO 2 emissions, even though positive in the low-regimes of economic growth. This study considered the efficiency levels and the evolution of macroeconomic fundamentals, providing new guidance for managers and policy-makers seeking to either innovate public policies and market positions or design sustainable asset investment strategies and portfolios.