Modeling Energy Consumption, CO2 Emissions and Economic Growth Nexus in Ethiopia: Evidence from ARDL Approach to Cointegration and Causality Analysis

Kebede, Shemelis (2017): Modeling Energy Consumption, CO2 Emissions and Economic Growth Nexus in Ethiopia: Evidence from ARDL Approach to Cointegration and Causality Analysis.

Abstract

Policy makers need to know the relationship among energy use, economic growth and environmental quality in order to formulate rigorous policy for economic growth and environmental sustainability. This study analyzes the nexus among energy consumption, affluence, financial development, trade openness, urbanization, population and CO2 emissions in Ethiopia using data from 1970–2014. The ARDL cointegration results show that cointegration exists among the variables. Energy consumption, population, trade openness and economic growth have positive impact on CO2 in the long-run while economic growth squared reduces CO2 emissions which confirms that the EKC hypothesis holds in Ethiopia. In the short-run urbanization and energy consumption intensify environmental degradation. Toda-Yamamoto granger causality results indicate the bi-directional causality between energy consumption and CO2 emissions, CO2 emissions and urbanization. Financial development, population and urbanization cause economic growth while economic growth causes CO2 emissions. Causality runs from energy consumption to financial development, urbanization and population which in turn cause economic growth. From the result, CO2 emissions extenuation policy in Ethiopia should focus on environmentally friendly growth, enhancing consumption of cleaner energy, incorporating the impact of population, urbanization, trade and financial development.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic growth, energy consumption, Financial development, Environmental Kuznets Curve, CO2 emissions, ARDL, Ethiopia
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C18 - Methodological Issues: General; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics

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