Threshold effects of capital investments on carbon emissions in G20 economies

Ajide, Kazeem Bello; Ibrahim, Ridwan Lanre

Threshold effects of capital investments on carbon emissions in G20 economies

2021

Ajide, Kazeem Bello | Ibrahim, Ridwan Lanre

Investment in capitals is sacrosanct to launch a country to a greater path of sustainable development. Notwithstanding, its deleterious impacts on environment are equally incontestable. In light of this stark reality, this paper examines the threshold effects of capital investments on carbon emissions in G20 economies over the period, 1992–2014, for which data are available. The study uses both exogenously determined and endogenously determined thresholds to uncover the relationship. While the former relies on median approach to determining the threshold on the one hand, the latter uses both the fixed effects panel threshold model proposed by (Hansen J Econ 93:345–368, 1999) and the bootstrap method by (Hansen Econometrica 68:575–603, 2000) to assess the statistical relevance of the threshold effects on the other hand. The results of the exogenously determined thresholds show higher statistical significant environmental impacts of capital investments at a median threshold of above 3.068 than when it is lesser. The findings of the latter approach indicate the relationship between capital investments and carbon emissions to be non-linear for the G20 countries. More specifically, this study establishes a single-threshold level of capital investment on carbon emissions for the group of countries. The threshold estimator of 3.434 is established at the 95% confidence interval. Beyond this point, the environmental impacts of capital investments are imaginable. On the policy front, keeping to the limit set by threshold effects would go a long way to stemming environmental pollution and mitigating climatic change impacts.

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