Munich Personal RePEc Archive

Fossil fuel based CO2 emissions, economic growth, and world crude oil price nexus in the United States

Shanthini, Rajaratnam (2007): Fossil fuel based CO2 emissions, economic growth, and world crude oil price nexus in the United States.

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Abstract

With the prime objective of learning from the fossil fuel based CO2 emissions-economic growth-world crude price nexus of a leading economy, the underpinning nature of the relationship among them is investigated for the United States (US). Autoregressive distributed lag bounds testing approach to cointegration provides empirical evidence for the existence of a long-run equilibrium relationship with 1% growth in GDP being tied up with 3.2% growth in CO2 emissions in the US. Increase in crude price and technological progress, proxied by time trend, are associated with decline in CO2 emissions in the long-run, though by comparatively small magnitudes. Short-run dynamics restore 25% of any disequilibrium in a year. Owing to the structural breaks identified in the individual series by the unit root tests, the stability of the model coefficients over the sample period is tested using the cumulative sum of recursive residuals test and ascertained. Error-correction based Granger causality tests provide evidence for fluctuating world crude real price Granger causing fluctuations in CO2 emission, and fluctuating CO2 emission Granger causing the rise and fall of real GDP. Deviations from long-run equilibrium are seen to Granger cause changes in both the CO2 emissions and the real GDP in the US.

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