Energy Consumption and Environmental Pollution: Evidence from the Spatial Panel Simultaneous-Equations Model of Developing Countries

This research applied a novel method to investigate the relationship between energy use and environmental pollution. We applied Spatial Panel Simultaneous-Equations for a panel of 22 developing countries over the period of 2000-2011. Previous researches indicate that the level of CO2 emissions increases with energy consumption. Also, Energy consumption is likely to have an increase in CO2 emissions. Appling a simultaneous equation model allowed us to estimate the relation between these two variables simultaneously. Identifying this relationship helps policymakers to design appropriate policies for achieving sustainable economic growth. On the other hand, the spatial models explain to what extent each dependent variable in a country depends on neighbors’ characteristics. Empirical results of this method show that energy consumption and environmental pollution in each country is affected by these factors in neighboring countries. Also, results confirm bidirectional causality and positive relation between energy use and environmental pollution. The econometrics estimation indicates that reducing CO2 emission in developing countries is dependent on the reform of energy consumption patterns and using renewable energy to replace fossil fuels in production simultaneously in these countries.