Do CO2 emissions, energy consumption and globalization promote economic growth? Empirical evidence from Japan

Abstract

In the empirical literature, there is no agreement on the linkage between environmental deterioration and economic growth. Thus, this paper aims to explore the long-run and causal effects of CO₂ emissions, globalization energy usage, trade openness and urbanization on economic growth in Japan by employing new econometric techniques. The paper uses a dataset spanning from 1970 to 2015 and employs recent econometric techniques. To the best of the investigator's understanding, no prior studies have examined this linkage utilizing the wavelet coherence technique for Japan. The novelty of the wavelet is that it can capture the causality and long-run linkage between economic variables at different frequencies and periods. Thus, the study's aim is to address the following questions: (i) Is there a long-run and causal linkage between economic growth, energy usage, urbanization, CO₂ emissions, trade openness and globalization? (ii) What is the interaction between economic growth and the regressors at various frequencies and periods? The paper utilizes the ARDL, DOLS and FMOLS to catch the long-run effects, whereas the wavelet coherence technique is employed to capture the causal effects among the indicators. The outcomes of the ARDL show that urbanization, CO₂ emissions, globalization and energy usage trigger economic growth, while no significant linkage is found between trade openness and economic growth. The wavelet coherence approach reveals (i) positive co-movements between economic growth and the regressors and (ii) a one-way causality from CO₂ emissions and energy usage to economic growth.

Keywords: CO2 emissions; Economic growth; Energy consumption; Globalization; Trade openness; Wavelet coherence.