Do energy consumption and carbon emissions impact economic growth? New insights from India using ARDL approach

Abstract

This paper investigates the association among energy consumption, carbon-dioxide emission, and India's economic growth along with supplemental variables including foreign direct investment, population density, inflation, and agricultural land. An autoregressive distributive lag model is applied over annual time-series data from 1985 to 2019. Further, the robustness and novelty of the model are confirmed by applying fully modified ordinary-least-square, dynamic ordinary-leastsquare, canonical co-integrating regression, variance decomposition, and impulse response function. The analysis results indicate that a cointegration association exists among variables. In the short run, the profound determinants of economic development are energy consumption, carbon-dioxide emission, inflation, and agricultural land. In the long run, both inflation and agricultural land significantly negatively influence economic growth while carbon emission drives a positive impact. Interestingly, a one-way Granger causality runs from economic growth towards energy consumption, carbon emission, and agricultural land. The new research presents a comprehensive understanding of economic growth indicators, aiding policymakers, and advancing existing literature. Consequently, as a recommendation, the policymakers should constitute explicit goals for renewable energy consumption to stimulate sustainable economic growth with carbon emission reduction. Apergis and Payne, 2010). These are also the fundamental components that enable people to overcome poverty and ensure a good lifestyle.In India, energy consumption increases every day because incomes are rising, and the population is also growing faster. India stands at the second number after the Republic of China in the world's most populated nations. Thermal power plants are the major source of fulfilling the growing energy demand of India. As per the report of the Central Electricity Authority, India (2021), 61.4 per cent of the power is generated by thermal plants, followed by renewable energy sources (24.6 per cent), hydro (12.2 per cent), and nuclear (1.8 per cent). The thermal power plants use coal, gas, lignite, and diesel sources for power generation. There is a need for regular and reliable electricity to meet the growing demand of different consumer categories, that is, residential, industrial, commercial, agricultural, and traction. These consumer categories contribute significantly to the country's economic growth (Altinay and Karagol, 2005;Mozumder and Marathe, 2007). A Nation has to bear the heavy cost of any constraint in electricity supply to different consumer categories. The significant consequences can be the sluggish economic growth, low credibility and confidence among potential investors, low productivity by agriculture and industrial sectors, lower exports, and higher dependence on imports (Shiu and Lam, 2004;Yoo, 2005). Therefore, a proper power supply is required for the growing economic growth of the nation.More dependence is on coal, gas, lignite, and diesel sources to pr...

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