A Panel Data Approach for Investigation of Gross Domestic Product (GDP) and CO2 Causality Relationship

Abstract

One of the current challenges and complications in the world is the climate change and global warming, which has numerous and varied effects and consequences in different regions. In this regard, the effects of economic activities on the increase in greenhouse gases and also the effects of greenhouse gases on economic activities have become increasingly controversial. In this study, an investigation was done upon the bidirectional causality relationship between real gross domestic product per capita and carbon dioxide emissions per capita in different countries. For this purpose, the Vector Auto-Regression Model with the micro panel application was used and the World Bank member countries were divided into different groups. Results indicated bidirectional causality relationship between Gross domestic product (GDP) and CO2 for three groups of countries. In addition, there was a one-way causal relationship from GDP o carbon dioxide volume for subgroups of countries with high average economic growth rate (HGR) and the rest of the world countries (ROW). This means that, to accomplish the international goals of decreasing the emissions of pollutant gases, collaboration between HGR and ROW group of the countries with industrial countries is indispensable. Moreover, heterogeneous noncausality test for Iran suggests that the economic activities are having increasingly negative environmental impacts on the country. Keywords: Carbon dioxide, Causality test, Gross domestic product, Micro panel, Vector auto-Regression.