Does Domestic Investment Have a Role in An Economy? An Analysis of the Connection Between CO2 Energy and Growth in the US and Canada

Yeboah Evans

doi:10.23762/FSO_VOL12_NO3_2

Published : 2024-09-30

Vol. 12 No. 3 (2024)

Does Domestic Investment Have a Role in An Economy? An Analysis of the Connection Between CO2 Energy and Growth in the US and Canada

Yeboah Evans

https://orcid.org/0000-0002-0934-3996

DOI: https://doi.org/10.23762/FSO_VOL12_NO3_2

Abstract

This study examines the relationship between domestic investment, economic growth, and carbon dioxide (CO2) emissions in the United States and Canada from 1990 to 2021 using ARDL bound testing. The findings reveal a long-run relationship between the variables in both countries. In the US, short-run results show a positive link between domestic investment and CO2 emissions, while economic growth has no significant impact. In the long run, only domestic investment positively influences CO2 emissions. Other factors such as trade openness exhibit positive short-run effects but long-run negative relationships with CO2 emissions, while fossil fuel consumption positively impacts emissions. Granger causality tests reveal bidirectional links between fossil fuel consumption and CO2 emissions, and a unidirectional causality from trade openness to CO2 emissions in the US economy. In Canada, positive short- and long-term connections exist between domestic investment and CO2 emissions. FDI and economic growth exhibit mixed short-run effects on emissions but positive long-term impacts. Fossil fuel consumption negatively affects emissions in both the short and long term, while trade openness shows a positive long-term effect. The findings stress the need for targeted policies to balance economic growth, investments, and environmental sustainability, including promoting renewable energy, sustainable trade, and clean technologies.

Keywords:

CO2 emissions, economic growth, domestic investment, fossil fuel, FDI.

Details

References

Statistics

Authors

Download files

pdf

Citation rules

Evans, Y. (2024). Does Domestic Investment Have a Role in An Economy? An Analysis of the Connection Between CO2 Energy and Growth in the US and Canada. Forum Scientiae Oeconomia, 12(3), 25–50. https://doi.org/10.23762/FSO_VOL12_NO3_2

Altmetric indicators

Cited by / Share

Licence

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

References

Abokyi, E., Appiah-Konadu, P., Tangato, K., & Abokyi, F. (2021). Electricity Consumption and Carbon Dioxide Emissions: The Role of Trade Openness and Manufacturing Sub-sector Output in Ghana. Energy and Climate Change, 2, 100026. https://doi.org/10.1016/j.egycc.2021.100026.

Adeleye, B., Nketiah, E., & Adjei, M. (2021). Causal Examination of Carbon Emissions and Economic Growth for Sustainable Environment: Evidence from Ghana. Studies of Applied Economics, 39(8), 3–18. https://doi.org/10.25115/eea.v39i8.4347.

Andrew, A. A. (2019). Carbon Emissions and the Trilemma of Trade Policy, Migration Policy and Health Care in the US. Carbon Management, 10(2), 209–218, https://doi.org/ 10.1080/17583004.2019.1577180.

Ang, B. (2007). CO2 Emissions, Energy Consumption, and Output in France. Energy Policy, 35(10), 4772–4778. https://doi.org/10.1016/j.enpol.2007.03.032.

Anthony, L. D., & Wolfram, S. (2016). Recent Weather Fluctuations and Agricultural Yields: Implications for Climate Change. Agricultural Economics, 47, 159–171. https://doi.org/ 10.1111/agec.12315.

Apergis, N., & Payne, J. E. (2010). The Emissions, Energy Consumption, and Growth Nexus: Evidence from the Commonwealth of Independent States. Energy Policy, 38(1), 650–655. https://doi.org/10.1016/j.enpol.2009.08.029.

Barro, J. (1991). Economic Growth in a Cross Section of Countries. The Quarterly Journal of Economics, 106(2), 407–443.https://doi.org/10.2307/2937943.

Berna, A., & Gülin, V. (2020). Evaluating the Role of Renewable Energy, Economic Growth and Agriculture on CO2 emission in E7 countries. International Journal of Sustainable Energy, 39(4), 335-348. https://doi.org/10.1080/14786451.2019.1686380.

Blunier, T., & Brook, J. E. (2001). Timing of Millennial-Scale Climate Change in Antarctica and Greenland During the Last Glacial Period. Science, 291(5501), 109–112. https://doi.org/10.1126/science.291.5501.109.

Carl-Friedrich, S., Gaurav, G., Joeri, R., & Matthew, J. G. (2022). An Emission Pathway Classification Reflecting the Paris Agreement Climate Objectives. Communications Earth& Environment, 3(135), 1–11. https://doi.org/10.1038/s43247-022-00467-w.

Chen, Y., Wang, Z., & Zhong, Z. (2019). CO2 Emissions, Economic Growth, Renewable and Non-Renewable Energy Production and Foreign Trade in China. Renewable Energy, 131, 201–216. https://doi.org/10.1016/j.igd.2024.100139.

Cleeren, K., Lamey, L., Meyer, J. -H., & De Ruyter, K. (2016). How Business Cycles Affect the Healthcare Sector: A Cross-country Investigation. Health Economics, 25, 787–800. https://doi.org/10.1002/hec.3187.

Cole, M. A. (2004). US Environmental Load Displacement: Examining Consumption, Regulations and the Role of NAFTA. Ecological Economics, 48(4), 439–450.https://doi.org/10.1016/j.ecolecon.2003.10.016.

Corinne, L Q., Robert, B. J., Matthew, W.J., Adam, J. P.S., Sam, A., Robbie, M. A., Anthony, J. D., David, R.W., Yuli, S., Josep, G.C., Pierre, F., Felix, C., Glen, P.P (2020). Temporary Reduction in Daily Global CO2 Emissions During the COVID-19 Forced Confinement. Nature. Climate Change, 10, 647–653 (2020). https://doi.org/10.1038/s41558-020-0797-x.

David, I. S. (2004). The Rise and Fall of the Environmental Kuznets Curve. World Development, 32(8), 1419–1439. https://doi.org/10.1016/j.worlddev.2004.03.004.

Davis, S. J. (2018). Net-Zero Emissions Energy Systems. Science, 360(6396), eaas9793. https://doi.org/10.1126/science.aas9793.

Dickey, D. A., & Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series with A Unit Root. Journal of the American Statistical Association, 74(366a), 427–431. https://doi.org/10.1080/01621459.1979.10482531.

Dickey, D., & Fuller, W. (1981). Likelihood Ratio Statistics for Autoregressive Time Series with A Unit Root. Econometrica, 49, 1057–1072.

Dogan, E., & Seker, F. (2016). The Influence of Real Output, Renewable and Non-Renewable Energy, Trade and Financial Development on Carbon Emissions in the Top Renewable Energy Countries. Renewable and Sustainable Energy Reviews, 60, 1074–1085. https://doi.org/10.1016/j.rser.2016.02.006.

Edward, O., Thomas, O. O., Van, L., & Jafar, E. A. (2018). The Environmental Kuznets Curve Model for Greenhouse Gas Emissions in Canada. Journal of Cleaner Production, 184, 859–868. https://doi.org/10.1016/j.jclepro.2018.02.178.

Ehigiamusoe, K. (2020). A Disaggregated Approach to Analyzing the Effect of Electricity on Carbon Emissions: Evidence from African countries. Energy Report, 6, 1286–1296.

EPA. (2021). Greenhouse Gas (GHG) Emissions and Removals. Washington, D.C: United States Environmental Protection Agency.

European Commission. (2019). The European Green Deal: Striving to be the First Climate-Neutral Continent. Brussels: European Commission.

Feldman, D., Barbose, G., Margolis, R., Wiser, R., & Darghouth, N. (2015). Photovoltaic System Pricing Trends: Historical, Recent, and Near-Term Projections. National Renewable Energy Laboratory.

Felix, C., Christian, B., Jerome, H., Jan, M., Glen, P. P., & Robert, S. (2019). The Mutual Dependence of Negative Emission Technologies and Energy Systems. Energy & Environmental Science, 2, 1805-1817. https://doi.org/10.1039/C8EE03682A.

Galeotti, M., Lanza, A., & Pauli, F. (2006). Reassessing the Environmental Kuznets Curve for CO2 Emissions: A Robustness Exercise. Ecological Economics, 57(1), 152–163. https://doi.org/10.1016/j.ecolecon.2005.03.031.

Granger, W. C. (1969). Investigating Causal Relations by Econometric Models and Cross Spectral Methods. Econometrica, 37(3), 424–438.https://doi.org/10.2307/1912791.

Grossman, G. M., & Krueger, A. B. (1995). Economic Growth and the Environment. The Quarterly Journal of Economics, 110(2), 353–377. https://doi.org/10.2307/2118443.

Haider, M., & Amira, H. (2023). The Environmental Kuznets Curve Hypothesis in the United States: A Review. International Journal of Energy Economics and Policy, 13(6), 397–403. https://doi.org/10.32479/ijeep.14920.

Halicioglu, F. (2009). An Econometric Study of CO2 Emissions, Energy Consumption, Income and Foreign Trade in Turkey. Energy Policy, 37(3), 1156–1164. https://doi.org/10.1016/j.enpol.2008.11.012.

Hao, Y. (2023). The Dynamic Relationship Between Trade Openness, Foreign Direct Investment, Capital Formation, and Industrial Economic Growth in China: New Evidence from ARDL Bounds Testing Approach. Humanities and Social Science Communication, 10(160), 1–11. https://doi.org/10.1057/s41599-023-01660-8.

Holtz-Eakin, D., & Selden, T. M. (1995). Stoking the Fires? CO2 Emissions and Economic Growth. Journal of Public Economics, 57(1), 85–101. https://doi.org/10.1016/0047-2727(94)01449-X.

IEA. (2020). World Energy Outlook 2020. Paris: International Energy Agency.

IEA. (2021). Energy Efficiency 2021. Brussels: International Energy Agency.

Joeri, R., Michel, D.E., Niklas, H., Taryn, F., Hanna, F., Harald, W., Roberto, S., Fu, S., Keywan, R., Malte, M. (2016). Paris Agreement Climate Proposals Need a Boost to Keep Warming Well Below 2 °C. Nature, 534, 631–639. https://doi.org/10.1038/nature18307.

Kao, C.-W., & Wan, J.-Y. (2017). Energy Consumption and Economic Growth: Further Evidence from Taiwan. International Journal of Economics and Finance, 9(7), 165–178. https://doi.org/10.5539/ijef.v9n7p165.

Kobayakawa, T. (2022). The Carbon Footprint of Capital Formation: An Empirical Analysis on its Relationship with a Country’s Income Growth. Journal of Industrial Ecology, 26(2), 1–14. https://doi.org/10.1111/jiec.13199.

Kraft, J., & Kraft, A. (1978). On the Relationship Between Energy and GNP. Journal of Energy and Development, 3(2), 401–403.

Li, B., & Haneklaus, N. (2021). The Role of Renewable Energy, Fossil Fuel Consumption, Urbanization and Economic Growth on CO2 Emissions in China. Energy Reports, 7, 783–791. https://doi.org/10.1016/j.egyr.2021.09.194.

Lin, B., & Agyeman, S. (2019). Assessing Ghana’s Carbon Dioxide Emissions Through Energy Consumption Structure Towards a Sustainable Development Path. Journal of Cleaner Production, 238, 117941. https://doi.org/10.1016/j.jclepro.2019.117941.

Liu, X. (2021). The Impact of Renewable Energy, Trade, Economic Growth on CO2 Emissions in China. International Journal of Environmental Studies, 78(4), 588–607. https://doi.org/10.1080/00207233.2020.1834686.

Mahamat, H.-H. (2012). Greenhouse Gas Emissions, Energy Consumption and Economic Growth: A Panel Cointegration Analysis from Canadian Industrial Sector Perspective. Energy Economics, 34(1), 358–364. https://doi.org/10.1016/j.eneco.2011.06.005.

Minlah, M., & Zhang, X. (2021). Testing for the Existence of the Environmental Kuznets Curve (EKC) for CO2 Emissions in Ghana: Evidence from the Bootstrap Rolling Window Granger Causality Test. Environmental Science and Pollution Research, 28(2), 2119–2131. https://doi.org/10.1007/s11356-020-10600-x.

Mohammed, B., & Ruslee, N. (2015). Foreign Direct Investment, Trade Openness and Economic Growth: Empirical Evidence from Thailand. Foreign Trade Review, 50(2), 73–84. https://doi.org/10.1177/0015732515572055.

Munir, K., & Riaz, N. (2020). Asymmetric Impact of Energy Consumption on Environmental Degradation: Evidence from Australia, China, and USA. Environmental Science and Pollution Research, 27, 11749–11759. https://doi.org/10.1007/s11356-020-07777-6.

Nadya, S., & Daryn, S. (2022). Does Islamic Financial Development Reduce Carbon Emissions? Evidence from OIC Countries. Islamic Economics Journal, 8(2), 232–248. http://dx.doi.org/10.21111/iej.v8i2.7333.

Narayan, P. (2005). The Saving and Investment Nexus for China: Evidence from Cointegration Tests. Applied Economics, 37, 1979–1990. https://doi.org/10.1080/00036840500278103.

Ozturk, I., & Acaravci, A. (2010). CO2 Emissions, Energy Consumption and Economic Growth in Turkey. Renewable and Sustainable Energy Reviews, 14(9), 3220–3225. https://doi.org/10.1016/j.rser.2010.07.005.

Pesaran, M. H., Shin, Y., & Smith, R. (2001). Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616.

Pesaran, M., & Shin, Y. (1999). An Autoregressive Distributed Lag Modelling Approach to Cointegration analysis. In: Strom S (ed.) Econometrics and Economic Theory in 20th century: the Ragnar Frisch Centennial Symposium. Cambridge: Cambridge University Press.

Phillips, P., & Perron, P. (1988). Testing for a Unit Root in Time Series Regression. Biometrika, 75, 335–346.

Rathnayaka, M. M., Epuran, G., & Tescașiu, B. (2021). Causal Links between Trade Openness and Foreign Direct Investment in Romania. Journal of Risk and Financial Management, 14(3), 1–18. https://doi.org/10.3390/jrfm14030090.

Romer, P. M. (1986). Increasing Returns and Long-Run Growth. Journal of Political Economy, 94(5), 1002–1037.

Salahuddin, M., Alam, K., Ozturk, I., & Sohag, K. (2018). The Effects of Electricity Consumption, Economic Growth, Financial Development and Foreign Direct Investment on CO2 Emissions in Kuwait. Renewable and Sustainable Energy Reviews, 81(2), 2002–2010. https://doi.org/10.1016/j.rser.2017.06.009.

Sarkodie, S. (2018). The Invisible Hand and EKC Hypothesis: What are the Drivers of Environmental Degradation and Pollution in Africa? Environmental Science and Pollution Research, 25, 21993–22022. https://doi.org/10.1007/s11356-018-2347-x.

Schmalensee, R., Stoker, T. M., & Judson, R. A. (1998). World Carbon Dioxide Emissions: 1950- 2050. Review of Economics and Statistics, 80(1), 15–27. https://doi.org/10.1162/003465398557294.

Selden, T. M., & Song, D. (1994). Environmental Quality and Development: Is there a Kuznets Curve for Air Pollution Emissions? Journal of Environmental Economics and Management, 27(2), 147–162. https://doi.org/10.1006/jeem.1994.1031.

Sharif, F., Hussain, I., & Qubtia, M. (2023). Energy Consumption, Carbon Emission and Economic Growth at Aggregate and Disaggregate Level: A Panel Analysis of the Top Polluted Countries. Sustainability, 15, 2935. https://doi.org/10.3390/su15042935.

Solomon, H., Robert, K., Amir, J., James, R., Michael, D., Shashank, M., Rasmussen, D.J., Robert, M., Paul, W., Michael, O., Kate, L., Trevor, H. (2017). Estimating Economic Damage from Climate Change in the United States. Science, 356(6345), 1362–1369. https://doi.org/10.1126/science.aal4369.

Sorrell, S., Speirs, J., Bentley, R., Brandt, A., & Miller, R. (2010). Global Oil Depletion: A Review of the Evidence. Energy Policy, 38(9), 5290–5295. https://doi.org/10.1016/j.enpol.2010.04.046.

Sovacool, B. K., & Dworkin, M. H. (2015). Energy Justice: Conceptual Insights and Practical Applications. Applied Energy, 142(1), 435–444. https://doi.org/10.1016/j.apenergy.2015.01.002.

Soytas, U., & Sari, R. (2003). Energy Consumption and GDP: Causality Relationship in G-7 Countries and Emerging Markets. Energy Economics, 25(1), 33–37. https://doi.org/10.1016/S0140-9883(02)00009-9.

Stern, I. (2000). A Multivariate Cointegration Analysis of the Role of Energy in the US Macroeconomy. Energy Economics, 22(2), 267–283. https://doi.org/10.1016/S0140-9883(99)00028-6.

Tansu, G., Manish, R., & Christian, B. (2022). Mitigation of Air Pollution and Corresponding Impacts During a Global Energy Transition Towards 100% Renewable Energy System by 2050. Energy Reports, 8, 14124–14143.https://doi.org/10.1016/j.egyr.2022.10.343.

Thobekile, Q., Edmund, V. N., & Isaac, D. (2022). Linkages Between Foreign Direct Investment, Trade Openness and Economic Growth in South Africa: Does Exchange Rate Regime Choice Matter? Latin American Journal of Trade Policy, 13, 59–86.

Tong, T., Ortiz, J., Xu, C., & Li, F. (2020). Economic Growth, Energy Consumption, and Carbon Dioxide Emissions in the E7 countries: A Bootstrap ARDL Bound Test. Energy, Sustainability and Society, 10(20), 1–17. https://doi.org/10.1186/s13705-020-00253-6.

Ugur, K. P. (2018). The Influence of Coal and Noncarbohydrate Energy Consumption on CO2 Emissions: Revisiting the Environmental Kuznets Curve Hypothesis for Turkey. Energy, 160, 1115–1123. https://doi.org/10.1016/j.energy.2018.07.095.

Wang, Y., & He, X. (2019). Spatial Economic Dependency in the Environmental Kuznets Curve of Carbon Dioxide: The Case of China. Journal of Cleaner Production, 498–510. https://doi.org/10.1016/j.jclepro.2019.01.318.

Wei, M., Patadia, S., & Kammen, D. M. (2010). Putting Renewables and Energy Efficiency to Work: How Many Jobs can the Clean Energy Industry Generate in the US? Energy Policy, 38(2), 919–931. https://doi.org/10.1016/j.enpol.2009.10.044.

World Bank. (2018). State and Trends of Carbon Pricing 2018. Washington, DC: World Bank.

World Bank. (2021). World Development Indicators. Washington DC: World Bank.

Zhang, Y., Zhang, Q., & Pan, B. (2019). Impact of Affluence and Fossil Energy on China Carbon Emissions Using STIRPAT Model. Environmental Science and Pollution Research, 26, 18814–18824. https://doi.org/10.1007/s11356-019-04950-4.

Zhikang, B., & Weisheng, L. (2023). Applicability of the Environmental Kuznets Curve to Construction Waste Management: A Panel Analysis of 27 European Economies. Resources, Conservation and Recycling, 188, 106667. https://doi.org/10.1016/j.resconrec.2022.106667.