On the Estimation of the CO 2 Emission, Economic Growth and Energy Consumption Nexus Using Dynamic OLS in the Presence of Multicollinearity

Kristofer Månsson (), B. M. Golam Kibria, Ghazi Shukur and Pär Sjölander
Additional contact information
B. M. Golam Kibria: Department of Mathematics and Statistics, Florida International University, Miami, FL 33199, USA
Pär Sjölander: Department of Economics, Finance and Statistics, Jönköping University, 553 18 Jönköping, Sweden

Sustainability, 2018, vol. 10, issue 5, 1-11

Abstract: This paper introduces shrinkage estimators (Ridge DOLS) for the dynamic ordinary least squares (DOLS) cointegration estimator, which extends the model for use in the presence of multicollinearity between the explanatory variables in the cointegration vector. Both analytically and by using simulation techniques, we conclude that our new Ridge DOLS approach exhibits lower mean square errors (MSE) than the traditional DOLS method. Therefore, based on the MSE performance criteria, our Monte Carlo simulations demonstrate that our new method outperforms the DOLS under empirically relevant magnitudes of multicollinearity. Moreover, we show the advantages of this new method by more accurately estimating the environmental Kuznets curve (EKC), where the income and squared income are related to carbon dioxide emissions. Furthermore, we also illustrate the practical use of the method when augmenting the EKC curve with energy consumption. In summary, regardless of whether we use analytical, simulation-based, or empirical approaches, we can consistently conclude that it is possible to estimate these types of relationships in a considerably more accurate manner using our newly suggested method.

Keywords: DOLS; EKC; Kuznets curve; MSE; Ridge (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.mdpi.com/2071-1050/10/5/1315/pdf (application/pdf)
https://www.mdpi.com/2071-1050/10/5/1315/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:10:y:2018:i:5:p:1315-:d:142969

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().