Reverse Causality Between Urbanization and Climate Change

Abstract

According to the literature on climate change and urbanization, both urbanization and climate affect each other. Almost all related studies on the relationship between these two main phenomena assume that this relationship is correlated, whereas there is evidence of reverse causality between the main drivers of them. With respect to the importance of the subject, we try to examine this reverse causality and then investigate the effects of urbanization and climate change on each other. Within two different models, the effects of different dimensions of the environment on the urban population and urban energy consumption, and vice versa, are estimated. To work with panel data and the assumption of endogeneity, models are estimated with fixed effects approach. According to the results, the reverse causality between urban population growth and, consequently, urban energy consumption patterns with climate change variables is confirmed using instrumental variables. Moreover, with the same model, the effects of the urban population and urban energy consumption on climate change variables were also estimated. All models show statistical and economic significance, which is proof of taking this reverse causality into account in urban development policies.