The long-run effects of economic, demographic, and political indices on actual and potential CO2 emissions

Abstract

This study examines the long-run drivers of potential and actual CO2 emissions in Ghana, a sub-Saharan Africa country. The use of the former helps address the reverse causality problem and capture the true long-run effects. The Stock-Watson dynamic OLS is used with data from 1970 to 2014. The result shows that potential CO2 emissions improve model efficiency. Income (except in "other sector") and financial development (except in manufacturing and construction sector) have compelling positive and negative effects on actual and potential CO2 emissions, respectively. A higher price (oil and electricity) reduces actual and potential CO2 emissions, but electricity price is more vital in residential, buildings and commercial and public services sector, while oil price is crucial in the transport sector. Democracy lowers actual and potential CO2 emissions in the aggregate (insignificant) and transport sectors but raises it in the manufacturing and construction sector. The effect is, however, inconsistent for the remaining sectors. Urbanization raises aggregate actual and potential CO2 emissions, but the effect is inconsistent for the transport sector. The findings have important implications for policy formulation.