Convergence in carbon dioxide emissions and the role of growth and institutions: a parametric and non-parametric analysis

This paper examines convergence of per capita carbon dioxide (CO2) emission for a panel of 124 countries taking into account the impact of economic growth and the quality of government institutions. The analysis builds on both parametric and non-parametric panel data techniques, and we examine the β-convergence hypothesis in a neoclassical growth model setting with institutional quality as one of the independent variables influencing both emissions and output growth. The results reveal evidence in support of β-convergence of per capita CO2 emissions for the global sample, and for the sub-samples comprising OECD versus non-OECD countries and high- versus low-income countries, respectively. There is, however, heterogeneity in β-convergence and it tends to vary with the level of the initial per capita CO2 emissions. We also report evidence of a negative direct effect of institutional quality on growth in per capita CO2 emissions, especially for the global and high-income samples. However, institutional quality also promotes economic growth, thus generating a positive indirect effect on emissions growth. Overall the empirical results suggest a positive net effect of institutional quality on growth in per capita CO2 emissions in the global sample. Finally, the non-parametric approach reveals some evidence of bias in the parametric approach, in particular in the case of the estimates for the convergence parameter at either end of the distribution.