Non-linear relationship between urbanization paths and CO2 emissions: A case of South, South-East and East Asian economies

Abstract

This study investigates the non-linear relationship between urbanization paths and CO2 emissions in selected South, South-East, and East Asian countries over the period 1971–2014. Based on the STIRPAT (Stochastic Impacts by Regression on Population, Affluence, and Technology) framework, we applied the advanced and robust methods of dynamic seemingly unrelated regression (DSUR), dynamic OLS (DOLS), and fully modified OLS (FMOLS) to estimate the long-term effects. The empirical findings revealed the inverted U-shaped effects of urbanization and urban agglomeration and the U-shaped impact of the largest city ratio on CO2 emissions. Urbanization and urban agglomerations improve environmental quality in the long-run and support ecological modernization theory. However, excessive concentration in the largest cities have severely affected the environmental quality and violates the notion of compact-city efficiencies. Moreover, energy intensity and economic growth positively affect CO2 emissions, while trade openness negatively influences CO2 emissions. Our robustness analysis at the country-level applies the augmented mean group (AMG) panel ARDL technique, which further supports the non-linear effect of urbanization paths on CO2 emissions except for a few countries. The results of the panel Granger non-causality approach unveil bidirectional causality of energy efficiency, economic growth, urbanization, and largest city ratio with CO2 emissions. In contrast, unidirectional causality runs from urban agglomeration to CO2 emissions. Our findings have important policy implications as we suggest green urban infrastructures, eco-friendly dwellings, smart cities, country-specific trade policies, and renewable energy options to improve the environmental quality.