The IUP Journal of Applied Economics
The Nexus Between Climate Sustainability and Economic Growth: Evidence from G4 Nations

Article Details
Pub. Date : Apr, 2019
Product Name : The IUP Journal of Applied Economics
Product Type : Article
Product Code : IJAE11904
Author Name : Megha Jain and Aishwarya Nagpal
Availability : YES
Subject/Domain : Economics
Download Format : PDF Format
No. of Pages : 26



Environmental Kuznets Curve (EKC) hypothesis proposes ‘inverted-U’ shaped association between per capita GDP and climate depletion. The existing literature has already put forth the positive linkage between expanding economic activity and environmental deterioration for developing nations and the reverse for developed nations. But there is hardly any single amalgamated study in the existing literature to examine it for G4 nations—Germany, Japan, India and Brazil. The present study, therefore, examines the impact of macroeconomic indicators (output, energy usage, urbanization and population growth), financial indicators (Global Competitiveness Index (GCI)1, financial market development, stock market capitalization, and FDI), governance indicators (control of corruption, government effectiveness, voice and accountability (as an interacting variable)), and qualitative indicator (GCI innovation) on per capita carbon emissions in G4 nations graphically and empirically by using a mix of both time series and dynamic panel regression techniques for the period 2005-2014. Further, it investigates the causality linkage for G4 nations to find out the impact of emissions on the competitiveness of the nations. This study finds its niche in using unique proxy variables for different indicators considered. The results confirm EKC postulation partially. Additionally, government effectiveness is found to be negatively associated with per capita emissions as expected. Most of the financial indicators are found to have ambiguous linkage with emissions. The robustness of the results is further confirmed using Sargan testing. The study highlights the relevance of making climate change policies as the mainstream goal for global governance through increased carbon spacing.


In the last two decades, drastic climate depletion has been found to pose an increasing threat to global warming, which makes it debatable worldwide. Since the completion of 1st Assessment Report (AR) by Intergovernmental Panel on Climate Change (IPCC) in 1990 under the structure of United Nations Framework Convention on Climate Change (UNFCCC), climate has been the extensive controversial public issue. The Kyoto Protocol (Grubb et al., 1997) had the key target of reducing the harmful gases that lead to climate change. It was implemented in 2005 to attain reduction in Greenhouse Gases (GHG) emissions to 5.2% lower than the 1990 level during the period 2008-2012. Carbon dioxide (CO2) is held responsible for 58.8% share of the total GHG (The World Bank Database, 2011)2. Despite the Kyoto Protocol agreement by developing and developed nations to contain emissions, the climatic concerns are still graver, given the region’s recent economic growth (Pao and Tsai, 2010), and play a pivotal role in the contemporary debate of environment protection and sustainable economic development. The national and international policy circles advocate the notion of ‘low carbon emissions and greener growth’.