Emissions GDP relationship in times of growth and decline


Working Paper 116

Abstract

This empirical paper focuses on the relationship between changes in GDP and CO2 emissions as a country’s economy moves through periods of growth and decline. Using a comprehensive panel, we document substantial heterogeneity in the relationship across countries.

Specifically, countries can be classified into one of the following three groups. Group D (for decline) includes countries where the emissions growth rate is more strongly associated with the GDP growth rate in periods of GDP decline than in periods of GDP growth. Group G (for growth) includes countries where the degree of association is stronger in periods of GDP growth. Finally, in group S (for symmetrical) it is not possible to reject the hypothesis that the relationship is the same for growth and decline.

According to a simple count criterion, approximately a third of the countries in the sample fall into each group. Notably, China and the US, currently the world’s largest emitters by a substantial margin, are in group D.

These results have potentially important consequences for long-term emissions projections. They also suggest that macroeconomic stabilization policies may have adverse emissions consequences by limiting the cleansing effect of periods in which GDP declines.

Baran Doda