Time‐varying causal nexuses between economic growth and CO2 emissions in G‐7 countries: A bootstrap rolling window approach over 1820–2015

Abstract

AbstractThis paper reinvestigates the causal nexuses between economic growth and CO2 emissions in G‐7 countries during 1820–2015 for all countries except Japan, for which the data spans from 1950 to 2015. The unit root test developed by Perron, Econometrica: Journal of the Econometric Society, 1989, 57, 1361–1401 and the cointegration test of Johansen et al., The Econometrics Journal, 2000, 3, 216–249 which accommodate structural breaks in trends are used to establish a long‐run equilibrium relationship between the variables. Our empirical analysis suggests a long‐run association between the variables. The bootstrap Granger causality test on the full sample and the sub‐samples with a fixed‐window size is used to resolve the issue of structural changes. The findings indicate that the causal relationships are country‐specific. Consistent with the short‐run stability tests, the rolling window analysis shows that causality between GDP and CO2 emissions is time‐varying. These findings offer important policy recommendations for sustainable growth and low‐carbon economy.