Innovations effect on CO2 emissions: asymmetric panel data approach

Abstract

The objective of this study is to uncover the nature and strength of the effect that innovations have on CO₂ emissions. The main motivation of this research is to offer reliable and credible findings by eliminating some methodical and conceptual shortcomings of the existing papers. The scope of the analysis is examining the innovations-CO₂ emissions relationship in a sample of 43 countries in the period from 1991 to 2018. The research is based on the application of hidden panel cointegration theory and the concept of a partially asymmetric cointegration equation. The main findings of the study demonstrate that when innovations grow by 1%, the pattern of their change leads to an increase in CO₂ emissions by an average of 0.006%. At the same time, when innovations decline by 1%, their change leads to a reduction in CO₂ emissions by an average of 0.001%. Strictly speaking, in the phase of innovations growth, they have environmentally hostile average influence, while in the phase of innovations reduction, their impact is on average environmentally friendly. The average effect of innovations is very asymmetric, because negative environmental impact is about six times stronger than the positive one. Analysis by countries demonstrates that innovations influence varies significantly from country to country. The impact is environmentally friendly in only 32.6% of countries, regardless of whether innovations increase or decrease. In the remaining cases, the influence on the environment is hostile either when innovations grow, when they decline, or in both situations. The main conclusion of this study is that nature of the impact of innovations on CO₂ emissions is quite unfavorable, which points to the need for much greater support for green innovations.

Keywords: CO2 emissions; Climate change; Common correlated effects mean group; Greenhouse gases; Hidden panel cointegration; Innovations; Partially asymmetric equation.