Is the Economic Growth in the United States Influenced by Its Fossil Fuel-based Carbon Dioxide Emissions?

Abstract

For the first time in the scientific literature, this research establishes empirical evidence for the existence of a causal relationship among fossil fuel-based carbon dioxide (CO2) emissions in the United States (US), her gross domestic product (GDP) and world crude price. Estimated long-run income elasticity of CO2 emissions is as high as 3.2% in the US. A strong bi-directional long-run causality is found between CO2 emissions and GDP. Short-run causality runs from crude price to CO2 emissions to GDP. Monte Carlo stochastic simulations of the model developed reveal even a small increase in the reference real GDP growth rate causes considerable increase in the future CO2 emissions in the US. Results of this study therefore suggest urgent policy actions are imperative in the US to decouple the strong causal relationship existing between her CO2 emissions and GDP, and to ensure sustainable economical development in the US.