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Nexus between Carbon Dioxide Emissions and Economic Growth in G7 Countries: Fresh Insights via Wavelet Coherence Analysis

Khalfaoui, Rabeh and Tiwari, Aviral Kumar and Khalid, Usman and Shahbaz, Muhammad (2021): Nexus between Carbon Dioxide Emissions and Economic Growth in G7 Countries: Fresh Insights via Wavelet Coherence Analysis.

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Abstract

This study aims to revisit the evidence of co-movement and lead-lag nexus between carbon dioxide emissions and economic growth in G7 countries over a period of two centuries by using the wavelet coherence analysis. The key findings reveal (i) a cyclical relationship between carbon dioxide emissions and GDP per capita, which implies that during the upswing phase of business cycles, economic growth and carbon dioxide emissions both grow, but the latter can be predicted using GDP as an indicator function at the 1- to 2-year scale. (ii) A time-scale bidirectional causality between carbon dioxide emissions and GDP per capita. This implies that carbon dioxide emissions cannot be reduced without adversely affecting economic growth. Further, the finding also implies a rapid adoption of alternative clean energy sources to reduce carbon dioxide emissions without depressing economic growth.

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