Regime-dependent effects of selected macroeconomic variables on CO2 emissions: Evidence from China

Abstract

The aim of this study is to examine the nonlinear effects of the macroeconomic variables on CO2 emission level and to determine how the cyclical patterns of carbon emission growth change along the changes in macroeconomic variables' growth rate under a regime switching mechanism in China employing nonlinear Granger causality and Markov-switching dynamic regression models. The results show no bidirectional causality between carbon emission level and the macroeconomic variables used in the model. The cyclical relationship between carbon emission level and income was negative in the high emission regime, but it became positive once a low-emission growth regime was reached. Specifically, the negative sign on GDP growth under the high-emission growth regime and the positive sign on GDP growth under low-emission growth regime and, furthermore, the changing cyclical behaviour of emissions growth with the continuous upward trend of GDP is compatible with the existence of an N-shaped EKC in the case of China.