A simultaneous evolution for analysing the interactions between CO2 emissions and national income

Abstract

In this paper, we estimate the causal interrelationships between growth and CO2 emissions within a simultaneous equations framework and obtain identification using a novel heteroskedasticity-based method. After the removal of the bias, we find that per capita GDP and CO2 emissions are strongly interrelated. Moreover, we split our dataset into high-income, middle-upper-income and low-income countries, and the results indicate that the beneficial effect of per capita GDP on CO2 emissions in high-income panel countries is greater than that in middle-upper panel countries. However, quicker economic development induces higher pollution in low-income countries. On the other hand, the effect of CO2 emissions results in the improvement of per capita GDP for the low to middle-upper income panel but a decrease in the improvement of per capita GDP for the high-income countries.