The role of trade openness and investment in examining the energy-growth-pollution nexus: empirical evidence for China and India

ABSTRACT

Most of the existing literature dealing with the relationship between carbon emissions, energy consumption and economic growth either suffers from ignoring relevant variables such as trade openness or investment, or suffers from using econometric methods that are unable to distinguish between short- and long-term causality and are not robust to the degree of integration of time series used for the analysis. This article suggests using the autoregressive distributed lag approach along with additional explanatory variables such as measures of trade and investment to shed a new light on the link between emissions, energy consumption and income in the two largest and energy-intensive developing economies: China and India. Our results, over the 1971–2009 period, provide evidence that investment plays a major role in shaping the relationship between carbon emissions, energy consumption and income in China while this is not the case in India. Furthermore, trade openness is found to play a key function in the short term in China but does not contribute to the emissions-energy-growth scenario in India.

KEYWORDS:

• Energy
• carbon emissions
• income
• ARDL approach
• India
• China

JEL CLASSIFICATION:

• Q43
• Q53
• Q56

Acknowledgements

Gazi Salah Uddin is thankful for the financial support from Jan Wallanders and the Tom Hedelius Foundation.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Integrated Energy Policy, Planning Commission of India, http://planningcommission.nic.in/reports/genrep/rep_intengy.pdf, accessed 16 July 2012.

² International Energy Outlook 2011 Highlights, U.S. EIA, http://www.eia.gov/forecasts/ieo/more_highlights.cfm#world, Accessed 16 July 2012.

³ Dinda (2005) and Kijima, Nishide and Ohyama (2010) provide excellent surveys of theoretical developments around the environmental Kuznets curve concept and its microeconomic underpinnings. Dasgupta et al. (2002) provide an interesting view on assumptions and implications of the existence of an EKC.

⁴ See Stern (2004), Dinda (2004), Dinda and Coondoo (2006), Carson (2010) and references therein for an excellent presentation and discussion of existing studies.

⁵ Ozturk (2010) provides an excellent – and highly exhaustive – survey to this literature. See also the Table 1 in Al-Mulali, Saboori and Ozturk (2015) which report the main features of the many numerous studies dealing with this issue.

⁶ Another source of misspecification highlighted in Carson (2010) is the functional form bias. This is also a central point in Musolesi and Mazzanti (2014) and we refer the interested reader to this article for references on this particular issue. In using the ARDL approach, we adopt a richer specification than in most of existing studies which make use of cointegration analysis.

⁷ The figures are not presented but are available upon request.