Abstract
The well-established emissions-growth debate relies on the symmetric nexus between CO2 emissions and economic growth, thereby ignoring a fundamental component of macro economy in the form of asymmetric relation. This paper considers how CO2 emissions respond asymmetrically to changes in economic growth. While utilizing both linear and nonlinear time series approaches for an environmentally exposed country, Pakistan over the period 1971–2018, we find convincing evidence that CO2 emissions rise more rapidly during negative shocks to economic growth than increase during economic expansions. Thus, contrary to what has previously been reported, the effect is strong as holds both at short run and long run. This is partly due to the increase in informal sector as GDP declines. Our estimated results show that accounting for the shadow economy results a higher magnitude of CO2 emissions due to decrease in economic growth, thus question the traditional symmetric decoupling of economic growth and CO2 emissions. The estimated results are robust to alternative estimators such as fully modified least squares (FMOLS) and dynamic OLS (DOLS). Thus, the findings of this study call for a re-thinking on climate policy design that rarely pays attention to the aforementioned outcomes due to fall in economic growth.
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Notes
As evidenced in the second half of 2013 that due to economic contraction, CO2 emissions hit the lowest level as that of 1994 in the USA.
Shadow economy (also known as informal, black, unofficial or underground economy) exhibits the alternative side of the dual economy structure such as the existence of economic activities outside the purview of the national authorities. For the plethora of the concepts, definitions and the related measurements methods of shadow economy (see Bajada 1999; Caridi and Passerini 2001; Schneider 2016; Schneider and Enste 2000).
There are some studies investigating EKC hypothesis in Pakistan include (see for instance, Shahbaz et al. 2012; Ahmed and Long 2013; Mehmood et al. 2013; Javid and Sharif 2016; Baloch et al. 2018) while numerous studies have worked out on the traditional sources of environmental pollution (see, Ahmed and Long 2012; Shahbaz 2013; Munawar et al. 2015; Baloch et al. 2018).
Considering the concerned limitations of the various measures, we prefer to use the aforementioned shadow economy index which uses the dynamic multiple indicators multiple causes (DYMIMIC) that is commonly preferred method in the literature.
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Said Zamin Shah, the corresponding author of this research manuscript initiated the research idea. He and Amdad Ullah analyzed and interpreted the data. Balach Rasheed contributed by writing review of literature. Muzafar Shah contributed by arranging and checking the manuscript.
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Baloch, A., Shah, S.Z., Habibullah, M.S. et al. Towards connecting carbon emissions with asymmetric changes in economic growth: evidence from linear and nonlinear ARDL approaches. Environ Sci Pollut Res 28, 15320–15338 (2021). https://doi.org/10.1007/s11356-020-11672-5
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DOI: https://doi.org/10.1007/s11356-020-11672-5