Towards connecting carbon emissions with asymmetric changes in economic growth: evidence from linear and nonlinear ARDL
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RESEARCH ARTICLE
Towards connecting carbon emissions with asymmetric changes in economic growth: evidence from linear and nonlinear ARDL approaches Amdadullah Baloch 1
&
Said Zamin Shah 2
&
Muzafar Shah Habibullah 3
&
Balach Rasheed 1
Received: 19 June 2020 / Accepted: 12 November 2020 # Springer-Verlag GmbH Germany, part of Springer Nature 2020
Abstract The well-established emissions-growth debate relies on the symmetric nexus between CO2 emissions and economic growth, thereby ignoring a fundamental component of macro economy in the form of asymmetric relation. This paper considers how CO2 emissions respond asymmetrically to changes in economic growth. While utilizing both linear and nonlinear time series approaches for an environmentally exposed country, Pakistan over the period 1971–2018, we find convincing evidence that CO2 emissions rise more rapidly during negative shocks to economic growth than increase during economic expansions. Thus, contrary to what has previously been reported, the effect is strong as holds both at short run and long run. This is partly due to the increase in informal sector as GDP declines. Our estimated results show that accounting for the shadow economy results a higher magnitude of CO2 emissions due to decrease in economic growth, thus question the traditional symmetric decoupling of economic growth and CO2 emissions. The estimated results are robust to alternative estimators such as fully modified least squares (FMOLS) and dynamic OLS (DOLS). Thus, the findings of this study call for a re-thinking on climate policy design that rarely pays attention to the aforementioned outcomes due to fall in economic growth. Keywords CO2 emissions . Economic growth . Shadow economy . Asymmetries . ARDL . Pakistan JEL classification C32 . E26 . E32 . O17 . O44 . Q43 . Q53
Introduction Responsible Editor: Eyup Dogan * Said Zamin Shah [email protected] Amdadullah Baloch [email protected] Muzafar Shah Habibullah [email protected] Balach Rasheed [email protected] 1
Department of Economics, Faculty of Management & Social Sciences, Lasbela University of Agriculture Water and Marine Sciences, Uthal 90150, Baluchistan, Pakistan
2
Department of Economics, Islamia College University, Peshawar, Pakistan
3
School of Business and Economics, Universiti Putra Malaysia, Serdang, Selangor, Malaysia
It is well known that measuring the trajectory of CO2 emissions which is the ultimate job of environmental planning for climate change mitigation and adaptation, depends on the changing role of economic growth for influencing emissions. As reported by Intergovernmental Panel on Climate Change (IPCC) that among the twin drivers of increasing CO2 emissions, the share of economic growth has mounted continuously over the last decade (IPCC 2013). Specifically, since the onset of recent Great Recession, the nexus between economic growth and emissions has received increasing attention in the form of changing emissions role of economy through periods of GDP growth and decline.1 From policy p
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