Over the past decades, many countries have experienced high levels of productivity growth. Yet, despite widespread concern about greenhouse effect and climate change, the majority of these economies have been contributing alarmingly to the rise of global carbon dioxide (CO₂) emissions. The paper seeks to explore the causal link between productivity growth and CO₂ emissions for 27 high-income countries for the period 1974 – 2000. An output based Malmquist total factor productivity (TFP) index utilizing distance functions derived from successive data envelopment analysis (DEA) frontiers is worked out. Strong evidence of a long run relationship between CO₂ emissions and TFP growth is obtained. Moreover, the Blundell-Bond system generalized methods-of-moments (GMM) method is utilized to conduct a Granger-type causality test within a vector autoregressive (VAR) panel data framework. Unidirectional causality running from productivity growth to CO₂ emissions is found in the short run while bi-directional causality is uncovered in the long run. The long run productivity growth elasticities of CO₂ emissions are estimated by employing the panel fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) methods respectively. The least biased estimator provides a value of 0.92. These results bear important implications for the modelling of CO₂ emissions and productivity growth in the context of designing environmental regulations for high-income economies.
|Keywords:||CO₂ Emissions, Productivity Growth, High-Income Countries|
Lecturer, Department of Economics & Statistics, University of Mauritius, Curepipe, Mauritius
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