Causal Analysis of Canada's Environment-Growth Nexus for Inclusive Development Metrics

Abstract

Little is known about the relevance of alternative measures of growth in environmental and developmental economic analyses. In Canada, for example, no literature exists on whether there is a causal link between the level of environmental performance and alternative measures of economic progress (which are argued to better capture the overall economic wellbeing than the gross domestic product - GDP). As environmental policies may relate to overall economic wellbeing, we opine that understanding overall economic progress is essential for achieving sustainable development and emissions reduction targets. This paper addresses a knowledge gap by assessing the causal links and directions between Canada’s national-level greenhouse gas emissions (GHG - as an indicator of environmental performance) and three alternative measures of economic growth, namely, gross national disposable income (GNDI), human development index (HDI), and index of economic freedom (IEF); from 1995 to 2019. Our results indicate that causality exists between Canada’s GHG and the alternative growth measures. This implies that Canada’s GNDI, HDI, and IEF may be useful and complementary to GDP in forecasting the national-level total GHG emissions. The research provides insights to further consider the role of overall economic wellbeing in the quest for sustainable, lower-emissions, economic development in Canada and by extension in other nations.