Revisiting the EKC hypothesis in an emerging market: an application of ARDL-based bounds and wavelet coherence approache
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Revisiting the EKC hypothesis in an emerging market: an application of ARDL‑based bounds and wavelet coherence approaches Tomiwa Sunday Adebayo1 Received: 29 July 2020 / Accepted: 14 October 2020 © Springer Nature Switzerland AG 2020
Abstract This study aims to reexamine long-run and causal effects of trade openness, energy usage, gross capital formation, and real growth on CO2 emissions in Mexico utilizing recent econometric techniques. The study utilizes yearly data spanning between 1971 and 2016. No prior study has used the wavelet coherence approach to collect information on the correlation and/or causal relation between these economic variables at different frequencies and time frames. Thus, this study proposes to fill the gap in the literature. The motives of the study are to address the questions: (a) Is the EKC hypothesis valid for Mexico? (b) Is there a long-run and causal relationship between CO2 emissions and its determinants? (c) How are the indicators related at different frequencies and various periods? To capture long-run effects, the study utilized ARDL, FMOLS, and DOLS estimators, while wavelet coherence technique is utilized to explore causal effects among the variables. The empirical findings confirm that (a) EKC hypothesis is valid for Mexico; and (b) gross capital formation, energy usage, and economic growth impact C O2 emissions positively. The wavelet coherence technique revealed (a) bidirectional causality between economic growth and CO2 emissions; (b) unidirectional causality from CO2 emissions to energy usage; and (c) one-way causality running from CO2 emissions to gross capital formation. Based on these findings, recommendations were suggested. Keywords CO2 emissions · Energy consumption · Economic growth · ARDL · Wavelet coherence technique · Mexico
1 Introduction The growth in the global economy has improved people’s living conditions in several different respects, including technical advancement, increased lifespan, higher wages, and improved educational prospects. Nevertheless, rising economic growth has also created certain negative results, including deprivation in certain countries, wealth inequalities, and environmental damage in addition to emissions and global warming. The increase in the production and consumption rates as well as the attempts of nations to attain rapid economic expansion has contributed to a dramatic rise in global C O2 emissions. During this phase, governments have neglected the adverse environmental
effects in order to promote growth in the country’s development, leading to a rise in CO2 emissions over the years. According to research published by the Intergovernmental Panel on Climate Change (IPCC) research, global warming caused by human activities has caused average temperatures to increase by approximately 1 °C compared to previous industrial times. The effects of the recent global warming of 1 °C have also been witnessed as severe weather events, increasing water rates, the loss of Arctic sea ice, and other detrimental changes. If the rise
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