Energy consumption, economic growth and CO2 emissions: empirical evidence from India

Abstract

The Empirical Econometrics and Quantitative Economics Letters Volume 4, Number 1, (March 2015): pp. 17  32. ISSN 2286  7147 © EEQEL all rights reserved

Energy consumption, economic growth and CO2 emissions: Empirical evidence from India

Geetilaxmi Mohapatra1 and A K Giri2

1Assistant Professor, Department of Economics and Finance, Birla Institute of Technology and Science (BITS), Pilani-333031 Rajasthan, India E-mail Id: geetilaxmi@gmail.com

2Associate Professor, Department of Economics and Finance, Birla Institute of Technology and Science (BITS), Pilani-333031 Rajasthan, India E-mail Id: akgiri.bits@gmail.com

ABSTRACT

This paper examines the causal and co-integrating relationship between energy consumption, economic growth and CO2 emissions in a multivariate framework by including urbanization, trade openness and gross fixed capital formation as other control variables for an emerging economy like India. Using the annual data from 1971 to 2012, the paper applied the Auto Regressive Distributed Lag (ARDL) bounds testing approach to examine the existence of short run and long run relationship; and VECM Granger causality test for checking the direction of causality. Stationary properties of the variables are checked by using DF-GLS, PP and KPSS unit root tests. The bounds test result supports the existence of long run relationship among the variables. The results of ARDL test indicate that energy consumption and urbanization has positive impact on CO2 emissions while economic growth has positive impact on the energy consumption in the long run. The short run and long run causality results indicate the presence of unidirectional causality from energy consumption and urbanization to air pollution and short run causality from economic growth to energy consumption. The study concludes that for accelerating economic growth, expansion of the industrial output depending on energy consumption is needed, which puts pressure on the environmen