CO2 Emissions and its effect on Economic Growth

Abstract

This thesis examines the economic impact of fossil fuel dependency, measured by CO2 emissions per capita, and analyzes it during different periods ranging from 1800 to 2018. We begin with a univariate model and add time lags to the model to create autoregressive models to investigate the impact over time. We use a Vector Autoregressive (VAR) model to analyze the relationship between CO2 emissions per capita and GDP per capita over time and include contemporary terms for further analysis. Our main goal is to determine whether CO2 emissions per capita drive GDP per capita or if the relationship is the opposite. Our analysis reveals a conditional cointegration between these two variables. We also investigate this relationship in the context of countries that participated in the Industrial Revolution and explore how it evolved after the implementation of climate change policies in 1970. Our findings indicate a robust association between CO2 emissions per capita and GDP per capita, with CO2 emissions per capita significantly Granger causing GDP per capita in consecutive years conditionally. To ensure the reliability of our results, we conduct additional robustness tests. Overall, this study sheds light on the intricate relationship between CO2 emissions per capita and economic growth per capita, providing insights into the potential consequences of fossil fuel dependency on national economies.