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The Nexus Between Carbon Emission, Energy Consumption, Economic Growth And Changing Economic Structure In India: A Multivariate Cointegration Approach

Author

Listed:
  • Chandrima Sikdar
  • Kakali Mukhopadhyay

    (NMIMS School of Business Management-Mumbai, India
    Gokhale Institute of Politics and Economics-Pune, Mumbai)

Abstract

India, one of the fastest growing economies of the world is also one of the largest CO2 emitters in the world. Challenge before the country is to reduce this alarming emission levels without hindering its growth prospects. Against this backdrop, the present paper studies the dynamic causal relationships between India's CO2 emission, energy consumption, GDP growth and changing economic structure. The study uses cointegration and causality analysis for the same. ARDL bound testing approach along with Johansen-Juselius maximum likelihood procedure is applied to examine the existence of long run equilibrium relationship among the variables. Causal linkages between the variables are studied using Granger causality test in Vector Error Correction model framework. For this the study uses data on India for-CO2 emissions, primary energy consumption, GDP per capita and structural variables like, agriculture and service value added, urbanization, production of capital and intermediate goods and employment. Primary energy consumption, per capita GDP and trade openness explain variations in CO2 emissions over long run. Elasticity of CO2 emission with respect to energy consumption is 2 percent in long run and 1.8 per cent in short run. CO2 emissions are less responsive to changes in per capita GDP (0.52) and trade openness (0.10). Both trade openness and GDP per capita growth lower emissions by producing and exporting more labor-intensive environment friendly goods. Causality analysis shows that trade openness Granger causes CO2 emission both in short run and in long run while CO2 emission Granger causes service value added and production of capital and intermediate goods in the short run. Output in these sectors in turn Granger cause employment in the long run. Given the nature of causality, there is no way that India can reduce energy consumption in service sector or in capital and intermediate goods sector. Thus, faced with growing concern over rising emission levels and requirements to meet its growth potentials, India should take policies aiming at greater investment in and usage of cleaner energy, conservation of energy and improving energy efficiency. This way it can strike a balance between reducing its emission levels while maintaining its current growth momentum.

Suggested Citation

  • Chandrima Sikdar & Kakali Mukhopadhyay, 2018. "The Nexus Between Carbon Emission, Energy Consumption, Economic Growth And Changing Economic Structure In India: A Multivariate Cointegration Approach," Journal of Developing Areas, Tennessee State University, College of Business, vol. 52(4), pages 67-83, October-D.
  • Handle: RePEc:jda:journl:vol.52:year:2018:issue4:pp:67-83
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    Cited by:

    1. Snovia Naseem & Tong Guang Ji & Umair Kashif & Muhammad Zulqarnain Arshad, 2021. "Causal analysis of the dynamic link between energy growth and environmental quality for agriculture sector: a piece of evidence from India," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 23(5), pages 7913-7930, May.
    2. Hongzhong Fan & Md Ismail Hossain, 2018. "Technological Innovation, Trade Openness, CO2 Emission and Economic Growth: Comparative Analysis between China and India," International Journal of Energy Economics and Policy, Econjournals, vol. 8(6), pages 240-257.
    3. Norimah Rambeli @ Ramli & Asmawi Hashim & Emilda Hashim & Norasibah Abdul Jalil & Gan Pei Tha, 2019. "Does Energy Consumption Influence the CO2 Emission?," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 9(3), pages 329-335, July.
    4. Kai Cheng & Hsin-Pei Hsueh & Omid Ranjbar & Mei-Chih Wang & Tsangyao Chang, 2021. "Urbanization, coal consumption and CO2 emissions nexus in China using bootstrap Fourier Granger causality test in quantiles," Letters in Spatial and Resource Sciences, Springer, vol. 14(1), pages 31-49, April.
    5. Rakesh Shahani & Aastha Bansal, 2021. "An Econometric Investigation of Dynamic Linkages Between CO2 Emissions, Energy Consumption, and Economic Growth: A Case of India and China," Jindal Journal of Business Research, , vol. 10(1), pages 107-127, June.
    6. Siddhartha Pradeep, 2022. "Role of monetary policy on CO2 emissions in India," SN Business & Economics, Springer, vol. 2(1), pages 1-33, January.
    7. Shahani, Rakesh & Bansal, Aastha, 2020. "An econometric investigation of Dynamic Linkages between CO2 emissions, energy consumption, & economic growth: A Case of India and China," MPRA Paper 103591, University Library of Munich, Germany.
    8. Gao, Tong & Fang, Delin & Chen, Bin, 2020. "Multi-regional input-output and linkage analysis for water-PM2.5 nexus," Applied Energy, Elsevier, vol. 268(C).

    More about this item

    Keywords

    CO2 emission; energy consumption; growth; structural change; India; ARDL model;
    All these keywords.

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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