3 December 2013 | Muhammad, Shahbaz and Qazi Muhammad Adnan, Hye and Aviral Kumar, Tiwari
This study examines the relationships among economic growth, energy consumption, financial development, trade openness, and CO₂ emissions in Indonesia from 1975Q1 to 2011Q4. The analysis uses the Zivot-Andrews structural break unit root test and the ARDL bounds testing approach to detect long-run relationships, and the VECM Granger causality technique to explore causal relationships. The innovative accounting approach (IAA) is used to test the robustness of the causality findings. The results confirm that the variables are cointegrated, indicating a long-run relationship. The findings show that economic growth and energy consumption increase CO₂ emissions, while financial development and trade openness reduce them. The VECM causality analysis reveals bidirectional causality between energy consumption and CO₂ emissions, and between economic growth and CO₂ emissions. Financial development Granger-causes CO₂ emissions, and there is unidirectional causality from CO₂ emissions to economic growth. The study suggests that policy makers should focus on promoting energy efficiency and financial development to control environmental degradation and improve environmental quality.This study examines the relationships among economic growth, energy consumption, financial development, trade openness, and CO₂ emissions in Indonesia from 1975Q1 to 2011Q4. The analysis uses the Zivot-Andrews structural break unit root test and the ARDL bounds testing approach to detect long-run relationships, and the VECM Granger causality technique to explore causal relationships. The innovative accounting approach (IAA) is used to test the robustness of the causality findings. The results confirm that the variables are cointegrated, indicating a long-run relationship. The findings show that economic growth and energy consumption increase CO₂ emissions, while financial development and trade openness reduce them. The VECM causality analysis reveals bidirectional causality between energy consumption and CO₂ emissions, and between economic growth and CO₂ emissions. Financial development Granger-causes CO₂ emissions, and there is unidirectional causality from CO₂ emissions to economic growth. The study suggests that policy makers should focus on promoting energy efficiency and financial development to control environmental degradation and improve environmental quality.