Multivariate Granger causality between CO₂ emissions, energy intensity and economic growth in Portugal: evidence from cointegration and causality analysis

Abstract

The present study aims to investigate the relationship between economic growth, energy intensity and CO₂ emissions by incorporating financial development in CO₂ emissions function using Portuguese annual data over the period of 1971–2011. The unit root problem of variables is examined by applying Zivot-Andrews unit root test and the ARDL bounds testing approach is for long run relationship. The direction of causal relationship between the series is examined by the VECM Granger causality approach and robustness of causality analysis is tested by innovative accounting approach (IAA).

Our empirical evidence confirmed that the variables are cointegrated for long run relationship. The results exposed that economic growth and energy intensity increase CO₂ emissions, while financial development condenses it. The VECM Granger causality analysis showed the feedback effect between energy intensity and CO₂ emissions, while economic growth and financial development Granger cause CO₂ emissions. The study suggests that environment degradation can be controlled by using energy efficient technologies. Financial development can also play its role in improving the environmental quality by encouraging investment in energy efficient technology to enhance domestic production and save the environment from degradation.

Keywords:

• growth
• energy
• financial development
• CO₂ emissions

JEL Classification:

• O1
• Q4
• F65
• Q5

Additional information

Notes on contributors

Muhammad Shahbaz

Muhammd SHAHBAZ. Assistant Professor at the Department of Management Sciences, COMSATS Institute of Information Technology, Lahore Campus, Pakistan. Author and co-author of more than 200 scientific articles. Research interests: Development Economics, Energy Economics and Environmental Economics.

Farooq Ahmed Jam

Farooq Ahmed JAM. Affiliated with Institute of Graduate Studies, University of Malaya, Kuala Lumpur Malaysia. He has published more 10 journal articles in various journals. Research interests: Development Economics.

Sadia Bibi

Sadia BIBI. Lecturer at the Department of Management Sciences, COMSATS Institute of Information Technology, Vehari Campus, Pakistan. She is author and co-author of 2 journal articles and 2 conference papers. Research Interest: Development Economics, Applied Economics.

Nanthakumar Loganathan

Nanthakumar LOGANATHAN. Assistant Professor at the Faculty of Economics and Management Sciences, Universiti Sultan ZainalAbidin, 21300 Kuala Terengganu, Terengganu, Malaysia. He is author and co-author of more than 30 scientific articles. Research interest: Development Economics, Resource Economics, Tourism Economics.