An investigation on the determinants of carbon emissions for OECD countries: empirical evidence from panel models robust to heterogeneity and cross-sectional dependence

Dogan, Eyup; Seker, Fahri

An investigation on the determinants of carbon emissions for OECD countries: empirical evidence from panel models robust to heterogeneity and cross-sectional dependence

2016

Dogan, Eyup | Seker, Fahri

This empirical study analyzes the impacts of real income, energy consumption, financial development and trade openness on CO₂ emissions for the OECD countries in the Environmental Kuznets Curve (EKC) model by using panel econometric approaches that consider issues of heterogeneity and cross-sectional dependence. Results from the Pesaran CD test, the Pesaran-Yamagata’s homogeneity test, the CADF and the CIPS unit root tests, the LM bootstrap cointegration test, the DSUR estimator, and the Emirmahmutoglu-Kose Granger causality test indicate that (i) the panel time-series data are heterogeneous and cross-sectionally dependent; (ii) CO₂ emissions, real income, the quadratic income, energy consumption, financial development and openness are integrated of order one; (iii) the analyzed data are cointegrated; (iv) the EKC hypothesis is validated for the OECD countries; (v) increases in openness and financial development mitigate the level of emissions whereas energy consumption contributes to carbon emissions; (vi) a variety of Granger causal relationship is detected among the analyzed variables; and (vii) empirical results and policy recommendations are accurate and efficient since panel econometric models used in this study account for heterogeneity and cross-sectional dependence in their estimation procedures.

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