Quantile-based Asymmetric Relationship Between Economic Growth and Carbon Emission in the World’s Top Five Largest Economies

Abstract

The world’s top five largest economies have the lion’s share of the world’s carbon emissions. In this study, we examine how economic growth affects carbon emissions in these countries. Here, we move beyond the debate on the Environmental Kuznets Curve by using quantile-based econometric tools to capture the non-linear relationship between economic growth and carbon emissions. For this purpose, we employ quantile regression (QR) and quantile-on-quantile regression (QQR). The results of QR indicate that Germany’s economic growth is environmentally friendly, while for other countries, economic growth directly contributes to increased carbon emissions. A heterogeneous effect of economic growth on carbon emissions is observed in the QR model. The QQR results show that, for the USA, Japan and Germany, economic growth positively affects carbon emissions at lower quantile combinations. However, at higher quantile combinations, economic growth leads to a reduction in carbon emissions. In contrast, for China and India, economic growth consistently causes an increase in carbon emissions across all quantile combinations. However, at higher quantile combinations, the effect is significantly weaker compared to lower quantile combinations. Therefore, we conclude that the degradation of environmental quality diminishes as economies mature.

JEL Codes: C50, O44, Q50, Q54, Q56