Revisiting the EKC hypothesis in an emerging market: an application of ARDL-based bounds and wavelet coherence approaches

Abstract

This study aims to reexamine long-run and causal effects of trade openness, energy usage, gross capital formation, and real growth on CO 2 emissions in Mexico utilizing recent econometric techniques. The study utilizes yearly data spanning between 1971 and 2016. No prior study has used the wavelet coherence approach to collect information on the correlation and/or causal relation between these economic variables at different frequencies and time frames. Thus, this study proposes to fill the gap in the literature. The motives of the study are to address the questions: (a) Is the EKC hypothesis valid for Mexico? (b) Is there a long-run and causal relationship between CO 2 emissions and its determinants? (c) How are the indicators related at different frequencies and various periods? To capture long-run effects, the study utilized ARDL, FMOLS, and DOLS estimators, while wavelet coherence technique is utilized to explore causal effects among the variables. The empirical findings confirm that (a) EKC hypothesis is valid for Mexico; and (b) gross capital formation, energy usage, and economic growth impact CO 2 emissions positively. The wavelet coherence technique revealed (a) bidirectional causality between economic growth and CO 2 emissions; (b) unidirectional causality from CO 2 emissions to energy usage; and (c) one-way causality running from CO 2 emissions to gross capital formation. Based on these findings, recommendations were suggested.

Coal Consumption and Environmental Sustainability in South Africa: The role of Financial Development and Globalization

“…Furthermore, prior studies have also reported that a rise in economic growth raises CO2 emissions . Similarly, in the study conducted by Adebayo (2020), the frequency domain technique adopted revealed a feedback causality between growth and CO2 in Mexico. In Turkey, Kirikkaleli and Kalmaz (2020) studied the interconnection between CO2 emissions and the economy, revealing that an increase in environmental degradation accompanies an increase in economic growth.…”

“…Odugbensan and Adebayo (2020) recently examined the interconnection between financial development and environmental sustainability in Nigeria and their empirical findings showed that environmental sustainability in Nigeria has been harmed by financial development. This result was not in agreement with the outcome of Adebayo and Odugbesan (2020), who utilized the wavelet coherence method to gather information on the correlation and causal relationship between financial development, real growth, and urbanization, and CO2 emissions in South Africa and they found that financial development impacts CO2 emissions positively in South Africa.…”

Co-movement of commodity price indexes and energy price index: a wavelet coherence approach

“…As discussed by Kirikkaleli (2019) and Adebayo (2020), time (represented by k) and frequency (represented by f ) are the main two elements of the wavelet approach. "The k parameter has an important role in detecting the exact location of a wavelet by relocating the wavelet over time, while f monitors the distended wavelet for localizing different frequencies" (Orhan et al 2019).…”

Can CO2 emissions and energy consumption determine the economic performance of South Korea? A time series analysis

“…The study of Odugbesan and Adebayo (2020) in South Africa also revealed a positive interaction between CO 2 emissions and GDP. In Japan, the study of Ahmed et al (2021) and Adebayo (2021b) established a positive association between GDP growth and environmental degradation. Al-Mulali (2011) established a positive connection between CO 2 emissions and GDP in the MENA region.…”