Economic growth, energy consumption, financial development, international trade and CO2 emissions in Indonesia

Abstract

This study examines the linkages among economic growth, energy consumption, financial development, trade openness and CO 2 emissions over the period of 1975Q 1 -2011Q 4 in the case of Indonesia. The stationary analysis is performed by using Zivot-Andrews structural break unit root test and the ARDL bounds testing approach for a long run relationship between the series in the presence of structural breaks. The causal relation between the concerned variable is examined by the VECM Granger causality technique and robustness of causal analysis is tested by innovative accounting approach (IAA). Our results confirm that the variables are cointegrated; it means that the long run relationship exists in the presence of structural break stemming in the series. The empirical findings indicate that economic growth and energy consumption increases CO 2 emissions, while financial development and trade openness compact it. The VECM causality analysis has shown the feedback hypothesis between energy consumption and CO 2 emissions. Economic growth and CO 2 emissions are also interrelated i.e. bidirectional causality. Financial development Granger causes CO 2 emissions. The study opens up a new policy insights to control the environment from degradation by using energy efficient technologies. Financial development and trade openness can also play their role in improving the environmental quality.

CO2-GDP NEXUS: Case for ASEAN 5

“…Similar findings found by Shahbaz et al (2013) where the linkages between economic growths to CO2 emissions in Indonesia over the period of 1975-2011 are unidirectional. Jahangir et al (2012) did a case study to test the causality of CO2 emissions and GDP for Bangladesh.…”

Time-varying analysis of CO2 emissions, energy consumption, and economic growth nexus: Statistical experience in next 11 countries

“…They reported that electricity consumption causes CO 2 emissions. For the Indonesian economy, Shahbaz et al (2013c) documented the bidirectional causality between economic growth and CO 2 emissions and between energy consumption and economic growth. In the case of Tunisia, Shahbaz et al (2014b) investigated the causal relationship between energy consumption, economic growth, and CO 2 emissions and noted that CO 2 emissions and energy consumption cause economic growth.…”

An Empirical Analysis of the Impact of Energy Consumption on the Financial Development of the Emerging Economies: A Moderating Role of Oil Prices

“…However, there is negative relationship between stock market activity and energy consumption (Hasnaoui, 2014). Shahbaz, Hye, Tiwari, and Leitão (2013) documented that an increase in CO2 is derived by increased economic growth and energy consumptions. However, financial development and traded openness reduced it.…”