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Threshold effects of capital investments on carbon emissions in G20 economies

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Abstract

Investment in capitals is sacrosanct to launch a country to a greater path of sustainable development. Notwithstanding, its deleterious impacts on environment are equally incontestable. In light of this stark reality, this paper examines the threshold effects of capital investments on carbon emissions in G20 economies over the period, 1992–2014, for which data are available. The study uses both exogenously determined and endogenously determined thresholds to uncover the relationship. While the former relies on median approach to determining the threshold on the one hand, the latter uses both the fixed effects panel threshold model proposed by (Hansen J Econ 93:345–368, 1999) and the bootstrap method by (Hansen Econometrica 68:575–603, 2000) to assess the statistical relevance of the threshold effects on the other hand. The results of the exogenously determined thresholds show higher statistical significant environmental impacts of capital investments at a median threshold of above 3.068 than when it is lesser. The findings of the latter approach indicate the relationship between capital investments and carbon emissions to be non-linear for the G20 countries. More specifically, this study establishes a single-threshold level of capital investment on carbon emissions for the group of countries. The threshold estimator of 3.434 is established at the 95% confidence interval. Beyond this point, the environmental impacts of capital investments are imaginable. On the policy front, keeping to the limit set by threshold effects would go a long way to stemming environmental pollution and mitigating climatic change impacts.

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Data Availability

The datasets generated during and/or analysed during the current study are available in World Bank Development Indicators (WDI) (https://databank.worldbank.org/source/world-development-indicators).

Notes

  1. Has been considered energy users and green gas emitters by Davis et al (2010) and William et al (2012).

  2. See G20-leaders-declaration (2017): p.10.

  3. The variables’ definitions are shown at the Appendix.

  4. The countries are European Union(EU), Brazil, Argentina, Australia, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Saudi Arabia, South Africa, South Korea, Russia, Turkey, United Kingdom and United States of America

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  1. Department of Economics, University of Lagos, Lagos, Nigeria

    Kazeem Bello Ajide & Ridwan Lanre Ibrahim

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KBA writes the manuscript. RLI writes the manuscript.

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Correspondence to Kazeem Bello Ajide.

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Appendix

Appendix

Variable

Definition

Source

pco2

CO2 metric tons per capita

World Development Indicator (WDI)

cap

Gross fixed capital formation

World Development Indicator (WDI)

peu

Energy use (kg of oil equivalent per capita)

World Development Indicator (WDI)

trade

Export plus import to GDP (trade openness)

World Development Indicator (WDI)

gdppc

Per capita GDP

World Development Indicator (WDI)

urb

Urban population(% of total population)

World Development Indicator (WDI)

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Ajide, K.B., Ibrahim, R.L. Threshold effects of capital investments on carbon emissions in G20 economies. Environ Sci Pollut Res 28, 39052–39070 (2021). https://doi.org/10.1007/s11356-021-13046-x

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