Green or Growth? Understanding the Relationship between Economic Growth and CO2 Emissions

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May 2024
The relationship between economic growth and environmental impact is a topic that has largely been studied through the framework of the Environmental Kuznets Curve (EKC), which posits an inverted U-shape relationship between the two. We examine this link by analyzing GDP and CO2 emissions per capita from 1970 to 2020 using a panel of 136 countries. We estimate both the short- and long-run income elasticities of CO2 emissions across various regions and for rolling time periods. The analysis focuses on Latin America and the Caribbean, aggregating and disaggregating data by region and introducing alternative measures of CO2 emissions. Though our findings confirm the existence of the EKC at the global level, we do not find evidence of it for all regions. A monotonic positive relationship between income and emissions is observed for Latin America and the Caribbean. We also find that, in most cases, the income elasticity of production-based emissions is lower than that of consumption-based emissions. This distinction is particularly pronounced in the Latin American and Caribbean region, where the income elasticity of consumption-based emissions is estimated at 0.95, as opposed to 0.56 when using a production-based measure.