The aim of this paper is to examine the effect of energy consumption, income, trade openness and population on the CO2 emission for selected five South Asia countries (India, Pakistan, Bangladesh, Sri Lanka, and Nepal) by using annual data from 1971 to 2013. After confirming that all the series are stationary using unit root test process, the study incorporates three different and advance panel cointegration tests. All the panel cointegration tests confirm that all the underlying variables are cointegrated. The long-run association between the variables is checked using FMOLS-grouped and individual cross-section country in the panel. The FMOLS grouped results show that the energy consumption, trade openness and population growth increase environmental degradation in the panel countries with exception of GDP which has negative impact on emissions. The innovative accounting approach (IAA) using variance decomposition test and impulse response function is applied to examine the causality amongst the vectors. The results show that there is bidirectional causality between energy consumption and trade openness and uni-directional causality running from energy consumption, trade openness and population to CO2 emissions. The results enumerate that the energy consumption and population density increase CO2 emissions in the long-run and foresee further environmental degradation in the region.
In regards to policy implications, there is a need for cooperation on the international level to resolve the global environmental problems. However, as also mentioned by Carbone et al.
(2009) that most of the countries are guided by their national self-interest to participate in global emission reduction agreements. Our empirical findings suggest that India, Pakistan, Bangladesh and Sri Lanka need to revisit the sustainable development policies. The energy consumption is highly emission intensive in these countries which potentially hinders their sustainable development goals. Furthermore, the current energy policy is unfriendly to sustainable development of the region. The population growth is the second largest factor contributing to CO2 emissions in three largest economies- India, Pakistan and Bangladesh, which requires immediate policy response at national.
I comparison to other regional blocs, the South Asian Association of Regional Coopertaion (SAARC) has been under utilized to address the common regional challenges.
However, SAARC could be an appropriate platform in achieving sustainable development goal at regional level. The best example of such cooperation is available neighborly available in shape of ASEAN. The region can benefit from global efforts to solve environmental and energy security problems through global cooperation.
References
Akhmat, G., Zaman, K., Shukui, T., Irfan, D., Khan, M.M. 2014. Does energy consumption contribute to environmental pollutants? Evidence from SAARC countries.
Environmental Science and Pollution Research, 21, 5940-5951.
Al-Mulali, U., Ozturk, I. (2015). The Effect of Energy Consumption, Urbanization, Trade Openness, Industrial Output, and the Political Stability on the Environmental Degradation in the MENA Region, Energy. 84, 382-389.
Al-Mulali, U., Tang, C.F., Ozturk, I. (2015a) Estimating The Environment Kuznets Curve Hypothesis: Evidence From Latin America and The Caribbean Countries. Renewable and Sustainable Energy Review, 50, 918-924.
Al-Mulali, U., Tang, C.F., Ozturk, I. (2015b). Does Financial Development Reduce Environmental Degradation? Evidence From A Panel Study of 129 Countries.
Environmental Science and Pollution Research, forthcoming.
22
http://link.springer.com/article/10.1007/s11356-015-4726-x
Al-Mulali, U., Ozturk, I., Lean, H.H. (2015c). The influence of economic growth, urbanization, trade openness, financial development, and renewable energy on
pollution in Europe. Natural Hazards, forthcoming.
http://link.springer.com/article/10.1007/s11069-015-1865-9
Apergis, N., Ozturk, I. (2015) Testing environmental Kuznets Hypothesis in Asian Countries.
Ecological Indicators, 52, 16-22.
Al-Mulali, U., Fereidouni, H.G., Lee, J.Y., Sab, C.N.B.C. 2013. Exploring the relationship between urbanization, energy consumption, and CO 2 emission in MENA countries.
Renewable and Sustainable Energy Reviews, 23, 107-112.
Alves, M.R., Moutinho, V. 2013. Decomposition analysis and innovative accounting approach for energy-related CO 2 (carbon dioxide) emissions intensity over 1996–2009 in Portugal. Energy, 57, 775-787.
Apergis, N., Ozturk, I. 2015. Testing environmental Kuznets Hypothesis in Asian Countries.
Ecological Indicators, 52, 16-22.
Baek, J., Kim, H.S. 2011. Trade liberalization, economic growth, energy consumption and the environment: Time series evidence from G-20 economies. Journal of East Asian Economic Integration, 15(1), 3-32.
Bank, W. 2013. Turn down the heat: climate extremes, regional impacts, and the case for resilience. World Bank.
Begum, R.A., Sohag, K., Abdullah, S.M.S., Jaafar, M. 2015. CO 2 emissions, energy consumption, economic and population growth in Malaysia. Renewable and Sustainable Energy Reviews, 41, 594-601.
Breitung, J. 2002. Nonparametric tests for unit roots and cointegration. Journal of Econometrics, 108, 343-363.
Brock, W.A. Taylor, M.S. 2005. Economic growth and the environment: a review of theory and empirics. Handbook of Economic Growth, 1, 1749-1821.
Carbone, J.C., Helm, C., Rutherford, T.F. 2009. The case for international emission trade in the absence of cooperative climate policy. Journal of Environmental Economics and Management, 58, 266-280.
Chang, C.C. 2010. A multivariate causality test of carbon dioxide emissions, energy consumption and economic growth in China. Applied Energy, 87, 3533-3537.
Cloyne, J. 2013. Discretionary tax changes and the macroeconomy: new narrative evidence from the United Kingdom. The American Economic Review, 103, 1507-1528.
Farhani, S., Ozturk, I. 2015. Causal relationship between CO2 emissions, real GDP, energy consumption, financial development, trade openness and urbanization in Tunisia.
Environmental Science and Pollution Research.
http://link.springer.com/article/10.1007/s11356-015-4767-1
Forslid, R., Okubo, T. Ulltveit-Moe, K.H. 2014. Why are firms that export cleaner?
International trade and CO2 emissions. CESifo Working Paper Series No. 4817.
Frankel, J.A., Rose, A.K. 2005. Is trade good or bad for the environment? Sorting out the causality. Review of Economics and Statistics, 87, 85-91.
Groen, J.J.J., Kleibergen, F. 2003. Likelihood-based cointegration analysis in panels of vector error-correction models. Journal of Business & Economic Statistics, 21, 295-318.
Grossman, G.M., Krueger, A.B. 1991. Environmental impacts of a North American free trade agreement. National Bureau of Economic Research.
Grossman, G.M., Krueger, A.B. 1994. Economic growth and the environment. National Bureau of Economic Research.
Hassan, M.N.A., Jaramillo, P., Griffin, W.M. 2011. Life cycle GHG emissions from Malaysian oil palm bioenergy development: The impact on transportation sector's
23
energy security. Energy Policy, 39, 2615-2625.
Heidari, H., Katircioglu, S.T., Saeidpour, L. 2015. Economic growth, CO 2 emissions, and energy consumption in the five ASEAN countries. International Journal of Electrical Power & Energy Systems, 64, 785-791.
Hossain, M. S. 2011. Panel estimation for CO2 emissions, energy consumption, economic growth, trade openness and urbanization of newly industrialized countries. Energy Policy, 39, 6991-6999.
Jalil, A., Mahmud, S.F. 2009. Environment Kuznets curve for CO2 emissions: a cointegration analysis for China. Energy Policy, 37, 5167-5172.
Kao, C. 1999. Spurious regression and residual-based tests for cointegration in panel data.
Journal of Econometrics, 90, 1-44.
Kasman, A. Duman, Y.S. 2015. CO2 emissions, economic growth, energy consumption, trade and urbanization in new EU member and candidate countries: A panel data analysis.
Economic Modelling, 44, 97-103.
Kim, H. S. & Baek, J. 2011. The environmental consequences of economic growth revisited.
Economics Bulletin, 31, 1198-1211.
Kozul-Wright, R. & Fortunato, P. 2012. International trade and carbon emissions. European Journal of Development Research, 24, 509-529.
Lanne, M., Nyberg, H. 2014. Generalized forecast error variance decomposition for linear and nonlinear multivariate models. School of Economics and Management, University of Aarhus.
Larsson, R., Lyhagen, J. Löthgren, M. 2001. Likelihood-based cointegration tests in heterogeneous panels. The Econometrics Journal, 109-142.
Levin, A., Lin, C.F., Chu, C.S.J. 2002. Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108, 1-24.
Lopez, R. 1994. The environment as a factor of production: the effects of economic growth and trade liberalization. Journal of Environmental Economics and Management, 27, 163-184.
Maddala, G.S., Wu, S. 1999. A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, 61, 631-652.
Maddala, G.S. Kim, I.M. 1998. Unit roots, cointegration, and structural change, Cambridge University Press.
Managi, S., Hibiki, A. Tsurumi, T. 2008. Does trade liberalization reduce pollution emissions.
Discussion papers, 8013.
Mccoskey, S. Kao, C. 1998. A residual-based test of the null of cointegration in panel data.
Econometric Reviews, 17, 57-84.
Menyah, K. Wolde-Rufael, Y. 2010. Energy consumption, pollutant emissions and economic growth in South Africa. Energy Economics, 32, 1374-1382.
Naranpanawa, A. 2011. Does Trade Openness Promote Carbon Emissions? Empirical Evidence from Sri Lanka. The Empirical Economics Letters, 10(10), 973-986.
Niu, S., Ding, Y., Niu, Y., Li, Y., Luo, G. 2011. Economic growth, energy conservation and emissions reduction: A comparative analysis based on panel data for 8 Asian-Pacific countries. Energy Policy, 39, 2121-2131.
OECD, 2014. World Energy Outlook 2014. Available at:
http://www.oecd.org/publications/world-energy-outlook-20725302.htm
Ozturk, I., Acaravci, A. 2013. The long-run and causal analysis of energy, growth, openness and financial development on carbon emissions in Turkey. Energy Economics, 36, 262-267.
Pedroni, P. 1999. Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics, 61, 653-670.
24
Pedroni, P. 2001. Purchasing power parity tests in cointegrated panels. Review of Economics and Statistics, 83, 727-731.
Pedroni, P. 2004. Panel cointegration: asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Econometric Theory, 20, 597-625.
Saboori, B., Sulaiman, J. Mohd, S. 2012. Economic growth and CO2 emissions in Malaysia: a cointegration analysis of the environmental Kuznets curve. Energy Policy, 51, 184-191.
Shahbaz, M. 2012. Does trade openness affect long run growth? Cointegration, causality and forecast error variance decomposition tests for Pakistan. Economic Modelling, 29, 2325-2339.
Shahbaz, M., Ozturk, I., Afza, T., Ali, A. 2013. Revisiting the Environmental Kuznets Curve in a Global Economy. Renewable and Sustainable Energy Reviews, 25, 494-502.
Shahbaz, M., Khraief, N., Uddin, G.S., Ozturk, I 2014. Environmental Kuznets Curve in an Open Economy: A Bounds Testing and Causality Analysis for Tunisia. Renewable and Sustainable Energy Reviews, 34, 325-336.
Shahbaz, M., Dube, S., Ozturk, I., Jalil, A. 2015. Testing the Environmental Kuznets Curve Hypothesis in Portugal. International Journal of Energy Economics and Policy, 5, 475-481.
Suri, V., Chapman, D. 1998. Economic growth, trade and energy: implications for the environmental Kuznets curve. Ecological Economics, 25, 195-208.
Takeda, F., Matsuura, K. 2006. Trade and the Environment in East Asia. Korea and the World Economy, 7, 33-56.
Tiwari, A.K., Shahbaz, M. 2014. Revisiting Purchasing Power Parity for India using threshold cointegration and nonlinear unit root test. Economic Change and Restructuring, 47, 117-133.
Uddin, G.S., Bidisha, S.H., Ozturk, I. 2016. Carbon Emissions, Energy Consumption and Economic Growth Relationship in Sri Lanka. Energy Sources, Part B: Economics, Planning, and Policy. Fortcoming.
Westerlund, J. 2007. Testing for error correction in panel data. Oxford Bulletin of Economics and Statistics, 69, 709-748.
Wiebe, K.S., Bruckner, M., Giljum, S. Lutz, C. 2012. Calculating energy-related CO2 emissions embodied in international trade using a global input–output model. Economic Systems Research, 24, 113-139.
Yildirim, E., Aslan, A., Ozturk, I. 2014. Energy Consumption and GDP in ASEAN Countries:
Bootstrap-Corrected Panel and Time Series Causality Tests. Singapore Economic Review, 59(2).
Ahmed, K., Bhattacharya, M., Qazi, A. Q., & Long, W. (2016a). Energy consumption in China and underlying factors in a changing landscape: Empirical evidence since the reform period. Renewable and Sustainable Energy Reviews, 58, 224-234.
Tan, Francis, Hooi Hooi Lean, and Habibullah Khan. "Growth and environmental quality in Singapore: Is there any trade-off?." Ecological Indicators 47 (2014): 149-155.
Pearce, D., Barbier, E., & Markandya, A. (2013). Sustainable development: economics and environment in the Third World. Routledge
Ahmed, K., Shahbaz, M., & Kyophilavong, P. (2016b). Revisiting the emissions-energy-trade nexus: evidence from the newly industrializing countries. Environmental Science and Pollution Research, 1-16.
Edwards, S. (1992). Trade orientation, distortions and growth in developing countries. Journal of development economics, 39(1), 31-57.
Shadlen, K. C. (2005). Exchanging development for market access? Deep integration and industrial policy under multilateral and regional-bilateral trade agreements. Review of International Political Economy, 12(5), 750-775.
25
Steinberg, R. H. (1997). Trade-environment negotiations in the EU, NAFTA, and WTO:
regional trajectories of rule development. American Journal of International Law, 231-267.
Ahmed, K., Shahbaz, M., Qasim, A., & Long, W. (2015). The linkages between deforestation, energy and growth for environmental degradation in Pakistan. Ecological Indicators, 49, 95-103.
World Bank (2014), Data on South Aisa (available at http://data.worldbank.org/region/SAS) Jänicke, M., Mönch, H., Ranneberg, T., & Simonis, U. E. (1989). Structural change and
environmental impact: empirical evidence on thirty-one countries in East and West. Environmental Monitoring and Assessment, 12(2), 99-114.
Shafik, N., & Bandyopadhyay, S. (1992). Economic growth and environmental quality: time-series and cross-country evidence (Vol. 904). World Bank Publications.
Stern, D. I., Common, M. S., & Barbier, E. B. (1996). Economic growth and environmental degradation: the environmental Kuznets curve and sustainable development. World development, 24(7), 1151-1160.
Hossain, M. S. (2011). Panel estimation for CO 2 emissions, energy consumption, economic growth, trade openness and urbanization of newly industrialized countries. Energy Policy, 39(11), 6991-6999.
Ahmed, K., & Long, W. (2013). An empirical analysis of CO2 emission in Pakistan using EKC hypothesis. Journal of International Trade Law and Policy, 12(2), 188-200.
Ling, C. H., Ahmed, K., Muhamad, R. B., & Shahbaz, M. (2015). Decomposing the trade-environment nexus for Malaysia: what do the technique, scale, composition, and comparative advantage effect indicate?.Environmental Science and Pollution Research, 22(24), 20131-20142.
Qazi, A. Q., Ahmed, K., & Mudassar, M. (2012). Disaggregate energy consumption and industrial output in Pakistan: an empirical analysis (No. 2012-29). Economics Discussion Papers.
Maslin, M. (2008). Global warming: a very short introduction. OUP Oxford.
Shahbaz, M., Hye, Q. M. A., Tiwari, A. K., & Leitão, N. C. (2013). Economic growth, energy consumption, financial development, international trade and CO 2 emissions in Indonesia. Renewable and Sustainable Energy Reviews,25, 109-121.
NASA (2014), Available at: http://climate.nasa.gov/evidence/ (Accessed. 25.07.2015)
Ahmed, K., Shahbaz, M., & Kyophilavong, P. (2016c). Revisiting the emissions-energy-trade nexus: evidence from the newly industrializing countries. Environmental Science and Pollution Research, 23(8), 7676-7691.
Ahmed, K. (2015). The sheer scale of China’s urban renewal and CO2 emissions: multiple structural breaks, long-run relationship, and short-run dynamics. Environmental Science and Pollution Research, 1-12.
Ahmed, K., Ahmed, N., Shahbaz, M., Ozturk, I., & Long, W. (2016). Modelling trade and climate change policy: a strategic framework for global environmental negotiators. Journal of Water and Climate Change, jwc2016123.
Ahmed, K., & Ozturk, I. (2016). The emission abatement policy paradox in Australia:
evidence from energy-emission nexus. Environmental Science and Pollution Research, 23(17), 17850-17856.