The CO2-Growth Nexus Revisited: A Nonparametric Analysis for G7 Economies over Nearly Two Centuries

Using a two-century long dataset and some recently popularized nonparametric econometric techniques, this study revisits the nexus between economic growth and carbon dioxide (CO2) emissions for the G7 countries over nearly two centuries. The use of nonparametric modelling is warranted by the fact that long historical time series are often subject to structural breaks and other forms of nonlinearity over the course of time. We employ nonparametric cointegration and causality tests along with the cross-validated Local Linear technique analysis and validate the existence of the environmental Kuznets curve in six of the G7 countries – Canada, France, Germany, Italy, U.K. and the U.S.– and the only exception is Japan. Our empirical analysis also finds CO2 emissions and economic growth to be cointegrated and closely interrelated in the Granger sense. Our results are robust and highlight the nonlinear causal relationship between the two variables.

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