Predictors of carbon emissions: an empirical evidence from NAFTA countries

Abstract

This study examined the predictors of carbon emissions in member countries of the North American Free Trade Agreement (NAFTA). Panel models robust to cross-sectional dependence and slope heterogeneity were used for the study. From the heterogeneity and cross-sectional dependence tests, the studied panel was heterogeneous and cross-sectionally dependent. Also, the unit root and cointegration tests established the series to be first differenced stationary and cointegrated in the long run. Additionally, results of the CCEMG regression estimator in the whole panel affirmed economic growth (GDP) to be a significantly positive predictor of CO2 emissions, while foreign direct investments (FDI) and population growth (POP) were trivial determinants of CO2 emissions. The discoveries were however diverse in the individual countries. Finally, there was no causality between GDP and CO2 emissions and between POP and CO2 emissions. However, there was a one-way causality from CO2 emissions to FDI. Policy recommendations are further discussed.