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Revisiting the emissions-energy-trade nexus: Evidence from the newly industrializing

Khalid Ahmed, Muhammad Shahbaz () and Phouphet Kyophilavong ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper applies Pedroni's panel cointegration approach to explore the causal relationship between trade openness, carbon dioxide emissions, energy consumption and economic growth for the panel of newly industrialized economies (i.e. Brazil, India, China and South Africa) over the period of 1970–2013. Our panel cointegration estimation results found majority of the variables cointegrated and confirm the long-run association among the variables. The Granger causality test indicates bi-directional causality between carbon dioxide emissions and energy consumption. A uni-directional causality is found running from trade openness to carbon dioxide emission and energy consumption, and economic growth to carbondioxide emissions. The results of causality analysis suggest that the trade liberalization in newly industrialized economies induces higher energy consumption and carbon dioxide emissions. Furthermore, the causality results are checked using an innovative accounting approach which includes forecast-error variance decomposition test and impulse response function. The long-run coefficients are estimated using fully modified ordinary least square (FMOLS) method and results conclude that the trade openness and economic growth reduce carbon dioxide emissions in the long-run. The results of FMOLS test sound the existence of environmental Kuznets curve hypothesis. It means, trade liberalization induces carbon dioxide emission with increased national output, but it offsets that impact in the long-run with reduced level of carbon dioxide emissions.

Keywords: Newly industrialized economies; Gross domestic production (GDP); Carbon dioxide emissions; Trade liberalization; Energy consumption (search for similar items in EconPapers)
JEL-codes: O1 O10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene and nep-env
Date: 2016-01-01, Revised 2016-01-05
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