Environmental Indicators and Production Volatility on Carbon Emissions and Economic Development

Abstract

The purpose of this study is to analyse the relationship between environmental indicators and production volatility, in contrast to previous research that primarily concentrated on the connection between carbon emissions and economic development. Due to the fact that output uncertainty puts both the advancement of the economy and the quality of life in jeopardy, it is considered to be a big worry on a global scale. In this study, the authors investigate the relationship between production volatility and emissions of greenhouse gases in 155 countries between the years 1971 and 2017. The cornerstone of the empirical inquiry is comprised of the Random and Fixed Effects Models, as well as the Pooled Ordinary Least Squares. According to the findings of the empirical research, the volatility of global output is being favourably amplified by emissions of methane (CH4), carbon dioxide (CO2), nitrogen oxide (NOX), and total greenhouse gases (GHGs). In addition, the Principal Component Analysis (PCA) of the pollutant indicators provides further evidence in support of the key conclusions. Carbon emissions, on the other hand, have a more significant impact on the increase in production volatility. Furthermore, a comparative study demonstrates that in agricultural economies, the introduction of any and all pollutants results in a large rise in output volatility. The findings of the Granger causality test confirm the existence of a two-way causal link between production volatility and environmental deterioration, which suggests that there is a problem with endogeneity. In order to solve this issue, the instruments of the output volatility model have been included into the system GMM estimator. The results of the system GMM are consistent with the findings of the main research. It is possible that switching to energy sources that generate less pollutants than greenhouse gases might be a realistic way towards achieving sustainable growth, according to the findings of the study.

Keywords- Environmental indicators, production volatility, carbon emissions, economic development