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Road Transport, Economic Growth and Carbon Dioxide Emissions in the BRIICS: Conditions For a Low Carbon Economic Development

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In this article, we investigate the relationship between economic growth and CO 2 emissions per capita due to road transport in order to test the validity of the Environmental Kuznets Curve (EKC) hypothesis. We test an EKC model on a sample of six
    Road Transport, Economic Growth and Carbon Dioxide Emissions in the BRIICS: Conditions For a Low Carbon Economic Development Barakatou Atte-Oudeyi, Bruno Kestemont and Jean-Luc De Meulemeester In this article, we investigate the relationship between economic growth and CO 2  emissions per capita due to road transport in order to test the validity of the Environmental Kuznets Curve (EKC) hypothesis. We test an EKC model on a sample of six emerging countries (Brazil, Russia, India, Indonesia, China and South Africa so-called BRIICS) using yearly data from 2000 to 2010. Empirical results reveal an inverted U-shaped EKC curve relating CO 2  emissions per capita due to road transport to the level of economic development (level of GDP per capita). In all models tested, the turning point exceeds the current GDP per capita of the richest country of the group, which means that it would happen virtually in a far future or after a strong growth episode. Results show that the turning point of this EKC for road transport depends on population density and the integration of government effectiveness into the BRIICS’s economic development policy. However, when Russia is omitted from the group, the EKC hypothesis does not hold anymore and CO 2  emissions per capita are uniformly increasing with per capita GDP. The main policy implication from our results is that policy makers should not base their policy on the EKC hypothesis: increasing the per capita GDP level alone cannot reduce CO 2  emissions per capita from road transport and without a significant change in policy, economic growth will exacerbate CO 2  emissions. Keywords: BRIICS; Road Transport; Economic Growth; CO 2  Emissions; Environmental Kuznets Curve; Panel Data; Pooled OLS Regression Model; Fixed-Effects and Random-Effects Regression Models. JEL Classifications: Q53, Q56, Q58, R41   CEB Working Paper N° 16/023 June 2016   Université Libre de Bruxelles - Solvay Brussels School of Economics and Management Centre Emile Bernheim ULB CP114/03 50, avenue F.D. Roosevelt 1050 Brussels BELGIUM e-mail: ceb@admin.ulb.ac.be Tel.: +32 (0)2/650.48.64 Fax: +32 (0)2/650.41.88     1 Road Transport, Economic Growth and Carbon Dioxide Emissions in the BRIICS: Conditions For a Low Carbon Economic Development Barakatou ATTE-OUDEYI 1  Bruno KESTEMONT 1,2  Jean-Luc DE MEULEMEESTER  1,3   ABSTRACT In this article, we investigate the relationship between economic growth and CO 2  emissions  per capita due to road transport in order to test the validity of the Environmental Kuznets Curve (EKC) hypothesis. We test an EKC model on a sample of six emerging countries (Brazil, Russia, India, Indonesia, China and South Africa so-called BRIICS) using yearly data from 2000 to 2010. Empirical results reveal an inverted U-shaped EKC curve relating CO 2  emissions per capita due to road transport to the level of economic development (level of GDP per capita). In all models tested, the turning point exceeds the current GDP per capita of the richest country of the group, which means that it would happen virtually in a far future or after a strong growth episode. Results show that the turning point of this EKC for road transport depends on population density and the integration of government effectiveness into the BRIICS’s economic development policy. However, when Russia is omitted from the group, the EKC hypothesis does not hold anymore and CO 2  emissions per capita are uniformly increasing with per capita GDP. The main policy implication from our results is that policy makers should not base their policy on the EKC hypothesis: increasing the per capita GDP level alone cannot reduce CO 2  emissions per capita from road transport and without a significant change in policy, economic growth will exacerbate CO 2  emissions.  Keywords : BRIICS; Road Transport; Economic Growth; CO 2  Emissions; Environmental Kuznets Curve; Panel Data; Pooled OLS Regression Model; Fixed-Effects and Random-Effects Regression Models. JEL-Codes: Q53, Q56, Q58, R41 1  Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Belgium. 2  Statistics Belgium, Belgium 3  Contact person: 50 av FD Roosevelt, 1050 Brussels, Jean-Luc.De.Meulemeester@ulb.ac.be   2 Road Transport, Economic Growth and Carbon Dioxide Emissions in the BRIICS: Conditions For a Low Carbon Economic Development Barakatou ATTE-OUDEYI 4  Bruno KESTEMONT 1,5  Jean-Luc DE MEULEMEESTER  1,6   I.   INTRODUCTION Economic growth is a key objective for developing countries. During the past two decades,  both theoretical and empirical analyses have been developed allowing for the identification of several key determining factors of economic growth 7 . Besides labour force, physical and human capital, technology and the role of institutions (Acemoglu 2009) the development of transport infrastructure  – particularly rail infrastructure – has been put forward as a growth factor in Europe during the Industrial Revolution (Rosenstein-Rodan 1943; 1976; Deane and Cole 1967) and in the United States in the second half of the nineteenth century (Fogel 1962). Following a recent survey of the economic history literature on the role of transportation (Bogart, 2013, p. 174), it should be stressed that a debate concerning the indispensability of railroads for the more developed economies has existed, stressing “how different transport modes can serve as substitutes”. Following Bogart (2013) the consensus was greater regarding the critical character of railways transportation for development in less developed countries like Mexico and Brazil (Coatsworth 1979; Summerhill 2005). Today and mainly in developing countries, the impact of road transport on economic growth is stressed, increasingly displacing the role of other forms of transport, including rail (Fay and Yepes 2003, table 4). The World Bank (1994), in a report devoted to the worldwide development of infrastructure, described transport infrastructure – and roads in particular – as a key driver of economic activity and as improving living standards of people, especially those in developing countries. The relationship between road transport and economic growth has therefore been the subject of several studies (such as Fernald 1999 and Banerjee, et al.  2012) in the recent years. Most of these studies agree on a positive relationship. Following a recent OECD report (2016), the short-run rebound effect of road transportation is estimated to be 17-18%, whereas the long-run effect would be about 32-33%. Lower income, 4  Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Belgium. 5  Statistics Belgium, Belgium 6  Contact person: 50 av FD Roosevelt, 1050 Brussels, Jean-Luc.De.Meulemeester@ulb.ac.be  7  For a recent textbook with connections with environmental issue see Weil (2009).  3 higher gasoline prices and higher density of public transport infrastructure are associated with larger rebound effects. During the last fifteen years, a number of new elements have contributed to a change in  perceptions of the role of these infrastructures. The first element is global warming due to increasing concentrations of greenhouse gases (GHG) such as carbon dioxide (CO 2 ), methane (CH 4 ) or dioxide nitrogen (NO 2 ) in the atmosphere (Stocker, et al. , 2013). Carbon dioxide, the main greenhouse gas, has increased dramatically since 1950 and accounted in 2010 for more than 75% of global GHG emissions in the world (OECD, 2012). The second element concerns the role of transport and particularly road transport in carbon dioxide emissions. In 2010, the transport sector generated 22% of CO 2  emissions in the world (figure 1.A). The majority of these emissions comes from road transportation, which accounts for 74 % of CO 2  emissions from the entire transport sector (figure 1.B). Figure 1: Total worldwide CO 2  emissions from fuel combustion, 2010. Source: Authors’ elaboration with data from the IEA (2012) With these two observations in mind, the main aim of this study is to analyse the link between CO 2  emissions from road transport and economic growth in six emerging countries (BRIICS). We try to assess whether a low-carbon transport-driven economic development possible. This study is organised as follows: in section two we review the literature on the relationship  between economic growth and environmental quality through the EKC hypothesis. In section three we describe the socio-economic and environmental profiles of the BRIICS countries. In section four we present the theoretical models and data, while empirical results and discussion are included in section five. Finally, section six summarises the main results and concludes. Electricity and heat production + other industrial energy46% Manuf. industries and construction21% Transport22%Residential6%Other 5% A. By sector  Road74%Other Transp26% B. By mode of transport  4 II.   LITERATURE REVIEW  Numerous studies (such as Fernald 1999; Banister and Berechman 2001;McKinnon 2007; Lakshmanan 2007; Didier et al.  2007 and Banerjee, et al.  2012) confirm the causal impact of road infrastructure on a country’s economic growth. These studies, however, are limited by their lack of specific estimates of the costs or damages that these infrastructures have on the environment (deforestation, loss of biological diversity, air and water pollution). Authors such as F. K. Rioja (2001) found that an increase in economic activity in response to an increased mobility of people and more important movements of goods may be detrimental to the welfare of the population due to environmental degradation. In recent years, scientific research in different fields has also shown and confirmed that human and economic activity influences environmental quality. An increase in mobility of people and movement of goods requires a greater amount of energy consumption, which has a negative influence on environment due to increased pollutants emissions, particularly carbon dioxide. The relationship between economic growth and pollutants  –  carbon dioxide in particular  –  has  been widely explored in the empirical literature in recent years, mainly through the Environmental Kuznets Curve (EKC) hypothesis. The concept of EKC, named after Simon Kuznets (1955) who considered an inverted U-shaped curve between economic development and income inequality, was projected on the income-environmental degradation relationship  by Grossman and Krueger (1991) in the early nineties. Figure 2: Environmental Kuznets Curve (EKC) hypothesis Source: Authors’ elaboration  Following this hypothesis, the emission of pollutants (proxy of environmental quality) is explained by a quadratic function of the level of per capita income (measure of the level of Environmental Decay Turning Point Income Per Capita Income      E  n  v   i  r  o  n  m  e  n   t  a   l   D  e  p   l  e   t   i  o  n Environmental Improvement
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