Dynamic Modeling of Causal Relationship Between Energy Consumption, CO2 Emissions, and Economic Growth in Italy

Abstract

The aim of this paper is to investigate the relationship between CO2 emissions (carbon dioxide emissions), energy consumption, and economic growth in Italy, using annual data covering the period 1960–2011. The unit root tests results indicated that the variables are not stationary in levels but in their first differences. Subsequently, Johansen’s cointegration test showed that there is a cointegrated vector between the examined variables. The vector error correction model (VECM) is used in order to find the causality relations among the variables. The empirical results of the study revealed that, in the short run, there is a unidirectional causality relation between economic growth and CO2 emissions with direction from economic growth to CO2 emissions, as well as a unidirectional causality relation running from economic growth to energy consumption. Moreover, the results showed that there is short-run bidirectional causality relation between energy consumption and CO2 emissions.