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

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Author Info

  • Paolo Paruolo

    ()
    (University of Insubria, Department of Economics, Italy)

  • 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)

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.

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Bibliographic Info

Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 32_12.

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Date of creation: Jun 2012
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Handle: RePEc:rim:rimwps:32_12

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Keywords: Environmental Kuznets Curve; Emissions; Income; Cointegration; Common trends;

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  1. Stern, David I., 2010. "Between estimates of the emissions-income elasticity," Ecological Economics, Elsevier, vol. 69(11), pages 2173-2182, September.
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  15. Galeotti, Marzio & Lanza, Alessandro & Pauli, Francesco, 2006. "Reassessing the environmental Kuznets curve for CO2 emissions: A robustness exercise," Ecological Economics, Elsevier, vol. 57(1), pages 152-163, April.
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