The integrated impact of GDP growth, industrialization, energy use, and urbanization on CO2 emissions in developing countries: Evidence from the panel ARDL approach

Abstract

Developing economies are an important engine of world economic growth. However, ensuring the quality of environmental assets is maintained amid rapid economic change remains a major challenge for most developing countries. Using the Panel Autoregressive Distributed Lag (ARDL) approach and the heterogeneous causality test, this study analyzes the combined effects of energy usage, industrialization, gross domestic product (GDP) growth, and urbanization on CO2 emissions for 23 developing countries across the 1995 to 2018 period. From our analysis, the long-run results reveal that a 1% increase in energy use, economic growth, industrialization, and urbanization increases CO2 emissions by 0.23%, 0.17%, 0.54%, and 2.32%, respectively. Moreover, our model's short- to long-term equilibriums are adjusted at a yearly rate of 0.19%. Finally, to verify the panel ARDL long-run results, robustness tests were carried out using the Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) approaches. Our results confirm that in the case of developing countries, CO2 emissions are primarily influenced by GDP growth, energy use, industrialization, and urbanization. Furthermore, the panel causality analysis identified a bidirectional causal relationship between energy use, GDP growth, urbanization, industrialization, and CO2 emissions. While these results can play an instrumental role in formulating CO2 emission policies among our selected countries, our research can also assist policy makers and stakeholders in other developing economies implement important policy initiatives. These include, tax incentives and infrastructural developments that nurture environmentally friendly industrialization, deploy low-carbon technologies, promote sustainable forms of urbanization and urban planning, while also facilitating increases in both the investment in and adoption of renewable energy platforms. The establishment of such a comprehensive policy agenda can help emerging economies achieve strong and environmentally sustainable GDP growth over the long-term.