Do Emissions and Income Have a Common Trend? A Country-Specific, Time-Series, Global Analysis, 1970-2008

Paolo Paruolo, Ben Murphy () and Greet Janssen-Maenhout ()
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Ben Murphy: European Commission, Joint Research Centre, Institute for Environment and Sustainability, Italy
Greet Janssen-Maenhout: European Commission, Joint Research Centre, Institute for Environment and Sustainability, Italy

Working Paper series from Rimini Centre for Economic Analysis

Abstract: This paper uses Vector Autoregressions that allow for nonstationarity and cointegration to investigate the dynamic relation between income and emissions in the period 1970-2008, for all world countries. We consider three emissions compounds, namely CO2, SO2 and a composite global warming index (GWP100). These emissions include energy-related activities with a share varying from 60% (GWP100) to almost 90% (SO2). For all chemical compounds, it is found that for over two thirds of cases income and emissions are driven by unrelated random walks with drift, at 5% significance level. For one quarter of the cases the variables are found to be driven by a common random walk with drift. Finally, for the remaining 4.5% of cases the variables are trend-stationary. Tests of Granger-causality show evidence of both directions of causality. For the case of unrelated stochastic trends, one finds a predominance of emissions causing income (in growth rates), which accords with a production-function rather than with a consumption-function interpretation of the emissions-income relation. The evidence challenges the main implications of the Environmental Kuznets Curve hypothesis, namely that the dominant direction of causality should be from income to emissions, and that for increasing levels of income, emissions should tend to decrease.

Keywords: Environmental Kuznets Curve; Emissions; Income; Cointegration; Common trends (search for similar items in EconPapers)
JEL-codes: Q53 Q54 (search for similar items in EconPapers)
Date: 2012-06
New Economics Papers: this item is included in nep-ene and nep-env
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Working Paper: Do emissions and income have a common trend? A country-specific, time-series, global analysis, 1970-2008 (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:32_12

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