On the Dynamic Linkages between CO2 Emissions, Energy Consumption and Growth in Greece

Field: Economics, Econometrics and Finance (Social Sciences)

1. Introduction In the past decade, numerous studies have been carried out to examine the gradual development of the relationship between quality and the level of GDP for either a country or a group of countries. Such studies are known as analyses of Kuznets curves, as a result of a hypothesis supported by Simon Kuznets in 1995. The causal relationship between quality and the level of development is considered to have a specific direction and in particular from to emissions and therefore to quality. However, it has also been argued that increased levels of emissions due to economic may have harmful effects on production (Pearson 1994, Stern et al. 1994) and consequently, the causal relationship between them might be bidirectional. Therefore, causality analysis is not simply a prerequisite for further research on the relationship environmental quality--GDP but also a useful tool for policy decisions. For example, if there is lack of causal effects then policies aiming at reducing emissions may not have any impact on economic growth. In any case, if there exist causal linkages, then policy measures should be designed with a clear awareness of the significance and direction of the causal link between emissions and GDP. The causality analysis has been applied in numerous empirical studies that investigate either the causal relationship between energy consumption and income levels (e.g. Yang, 2000, Shiu and Lam 2004, Yoo 2005) or the one between C[O.sub.2] emissions and income. The study of Coondoo and Dinda (2002), reports one-way causal relationship between C[O.sub.2] emissions and income for the groups of developed countries in North America, Eastern and Western Europe. In parallel, a considerable number of studies on economic and pollution has focused on the relationship between economic and energy consumption, since the pollution emissions are produced primarily by the consumption of solid fuels. Obviously, the understanding of the interaction and the direction of causality between energy consumption and economic is very important in the formulation of policies for energy and the environment. For both the above mentioned bivariate relationships, the relevant literature considers the following cases: (1) The growth hypothesis: The causal direction is from energy consumption / emissions to income. (2) The conservation hypothesis: The causal direction is from income to energy consumption emissions. (3) The neutrality hypothesis: There is no causality between income and energy consumption emissions and last (4) The feedback hypothesis: There is bidirectional causality between income and energy consumption emissions. The literature has not yet come to a general acceptance for the nature and direction of the causal relationship between energy consumption, pollution and economic development and this is because the results depend on the level of development, the considered time period as well as the applied empirical methodology. The combination of the two bibliographies for the C[O.sub.2]-Growth nexus and the Energy Consumption-Growth nexus, so that the relationship between economic growth, energy consumption and pollution emissions could be tested within a multivariate causal framework, is a relatively new and very interesting area for the relative research. Besides, it seems much more promising for policies aiming at the gradual reduction of the national energy needs since policy makers have to consider the possible > between economic growth, energy consumption and pollution. Most existing studies refer to individual countries. There are studies for developed countries, such as France (Ang, 2007) and USA (Soytas et al., 2007), studies for developing countries, such as China (Zhang & Cheng, 2009), Malaysia (Ang, 2008) and Turkey (Halicioglu 2009, Soytas& Sari 2009) and for the rich oil countries of OPEC (Sari & Soytas, 2009). …