Environmental degradation: The role of electricity consumption, economic growth and globalisation

Abstract

This paper examines the effects of electricity consumption, economic growth and globalisation on the CO2 emissions of top 10 electricity consuming countries. Taking annual data from 1971 to 2013, a panel cointegration approach is adopted where Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) methods are used to examine the long-run effects. Dumitrescu and Hurlin causality test is used to explore the directions of causality between the variables of interest. The empirical results reveal that there is a long-term association among these variables; and electricity consumption and economic growth positively and significantly affect the CO2 emissions in these countries. In contrast, globalisation has significant negative impact on the CO2 emissions implying the improvement of environmental quality. The findings also confirm the existence of the Environmental Kuznets Curve (EKC) hypothesis, the bidirectional causalities between economic growth and CO2 emissions, between electricity consumption and CO2 emissions, and between globalisation and economic growth in the sample countries. A unidirectional causality from economic growth to electricity consumption, from electricity consumption to globalisation and from globalisation to CO2 emissions is also found. Policy guidelines are suggested in line of the findings.