CO2 emissions, energy consumption and economic growth in the EU countries: Evidence from threshold cointegration analysis

Abstract

This paper aims to look at the long-run equilibrium relationship between CO2 emissions and economic growth (EKC hypothesis) in an asymmetric framework using the non-linear threshold cointegration. To test the robustness of the results the additional explanatory variables (time trend and/or energy consumption) are added to the EKC model. The empirical study is carried out for the European Union countries divided into three groups depending on a level of knowledge advanced economies in order to explain the differences in the dynamic linkage between CO2 emissions and economic growth. We have found that the EKC hypothesis is valid for all high-level and some middle-level knowledge advanced economies. The addition of energy consumption or time trend to the EKC model has affected the results in terms of the presence of threshold cointegration with an asymmetric adjustment process. These results suggest that the EKC model should be estimated using an approach accounting for asymmetric adjustment.