Nexus between selected macroeconomic variables and carbon emission in Kenya

Abstract

Agriculture is not only influenced by climate change, but it is also one of the significant contributors of CO₂ emission. Understanding CO₂ emission and macroeconomic variables is critical to solving the challenges and threats faced by Kenya's agriculture and environment. This study used the Environmental Kuznets Curve (EKC) hypothesis and the autoregressive distribution lag model (ADLM) to analyze the relationships of CO₂ emission with agricultural output, government direct investment, trade openness, and inflation rate in Kenya from 1983 to 2019. The study found that there exists a positive (direct) relationship between CO₂ emission and foreign direct investment in the long run in Kenya. Additionally, CO₂ emission and trade openness have a negative (indirect) and statistically significant relationship after the error correction term adjustment in the long run. Moreover, the relationship between CO₂ emission and agricultural output is positive (direct) and statistically significant in the long run. There is a positive (direct) and statistically insignificant relationship between CO₂ emission and inflation rate in the short run. Notably, the EKC hypothesis indicated that the Kenya's economy is still on the environmental degradation trade-off through the gradual increase of both CO₂ emission and agricultural output. Our results are important to Kenya's economy because the derived insights will assist in relevant departments to formulate sustainable strategies to minimize environmental degradation.