IMPACT OF ECONOMIC GROWTH ON CARBON DIOXIDE EMISSION IN THE NORTH AND SOUTH AMERICAN COUNTRIES

Author

Success Amobi-Ndubuisi Okafor, Southern Illinois University CarbondaleFollow

Date of Award

12-1-2022

Degree Name

Master of Science

Department

Agribusiness Economics

First Advisor

Asirvatham, Jebaraj

Abstract

Greenhouse Gas emission increase is largely attributed to carbon dioxide emissions as the major gas causing climate change and atmospheric warming. According to Environmental Kuznets Curve Theory (EKC), the increase in economic growth is expected to reduce the environmental pollution from carbon dioxide emission caused at the beginning stages of economic growth. In this thesis, I examined the impact of economic growth on carbon dioxide emission. The key hypothesis tested in this study is the Environmental Kuznets Curve hypothesis. Data from 1967 to 2016 from over 15 countries in North and South America, published by the World Bank were used. Since EKC posits a non-linear relationship between economic growth (GDP/capita) and Carbon dioxide emission, I used a quadratic component in the regression model. I analyzed the data using the OLS regression as my baseline model. Each country is unique in many respects that are hard to capture by a set of variables in econometrics model. This poses a challenge to estimating an unbiased estimate. Using panel data model allowed controlling for time invariant unobserved country-specific factors that could bias the estimates. I estimated a fixed effect panel regression to examine the relationship between carbon dioxide emissions and economic growth is primarily measured with Gross Domestic Product (GDP) per capita. The results of the fixed effect panel regression showed that all variables are significant, except export and inflation which were not significant. OLS could not solve the issue of heterogeneity among the variables. Estimating country-specific fixed effects model eliminates unobserved heterogeneity across countries and, therefore provides relatively unbiased estimates compared to OLS estimates. The positive correlation between Total CO2 emissions, CO2 emissions from Solid, and CO2 emissions from gas and GDP per capita suggests that carbon dioxide emissions increase as GDP/ capita increases before the turning point. The negative correlation between Total CO2 emissions, CO2 emissions from Solid, and CO2 emissions from gas and GDP per capita squared suggests that there is a polynomial (quadratic) form which is like that of inverted U-shape of the EKC curve. The coefficient, although it is very small, suggests the impact of the negative relationship after the turning point at the vertex of EKC curve is fractional. As expected, the result indicates a higher population causes an increase in total CO2 emissions. The result from CO2 emissions from liquid shows a negative relationship between the dependent variable CO2 emissions from liquid and the independent variable GDP per capita at the highest level of significance. This result is different from that of total carbon dioxide emissions, CO2 emissions from Solid, and CO2 emissions from gas. Carbon emission from liquid looks different from carbon emissions from solid and gas. There are high and constant emission throughout all the years and in all countries used in the analysis. EKC hypothesis is proven to be true for total carbon dioxide emissions, carbon dioxide emission from solid and gas. The hypothesized correlation between GDPs per capita square and CO2 emissions is statistically supported for Total CO2 emission, CO2 emission from solid and CO2 emission from gas. CO2 emissions from Solid, and CO2 emissions from gas and GDP per capita squared suggest that there is a polynomial (quadratic) form which is like that of inverted U-shape of the EKC curve. This proves that EKC model is proven to be true for my data. Policies like population policies can help in increasing growth in GDP per capita and reducing growth in the amount of carbon dioxide emissions. Population policies could play a significant role aimed at mitigating and reducing climate change.