Carbon emission and economic growth nexus: Empirical evidence from the five largest carbon emitters

Abstract

The mad rush for rapid economic growth led by industrialization in emerging economies is having a negative impact on ecological management. Rapid economic growth and expansion of economic activities in most developed countries have resulted in acceleration of global warming and climate change. The direction of causality between carbon emission and economic growth varies from one country to the other depending on the data set and methodology employed by the researcher. In this paper, we examine the causal relationship between carbon emission and economic growth in five selected countries namely China, United States, Russia, India, and Japan. These countries are selected because they are the largest carbon emitters in the world. The study used two types of unit root test technique Levin-Lin-Chu (LLC) and Im-Pesaran-Shin (IPS) unit-root tests to ascertain the order of integration. Johansen Fisher Panel cointegration techniques and Pairwise Dumitrescu Hurlin Panel Causality Tests were applied to determine the existence of a long run relationship causal relationship between carbon emission and economic growth. Using panel cointegration approach, Fully Modified OLS and panel granger causality test, we found that there is a unidirectional causal flow from carbon emission to economic growth in most of the largest carbon emitters in the world in the long run. Therefore, the five most significant carbon emitters need to strengthen their carbon management and efficiency policies to avoid further environmental damages associated with rapid economic growth.