On the Causality between FDI, International Trade Indicators, Energy Consumption, and CO2 Emissions in India

The causal relationship between the consumption due to increased international trade and resultant CO2 emissions has been a subject of debate. This study examines the relationship between CO2 emissions and energy consumption along with global trade indicators for India using data from World Bank for the period 1982-2013. The study employed Augmented Dickey Fuller unit root test for stationarity among the variables, Johansen Cointegration technique to determine the order of the cointegration equation, and then the Vector Error Correction mechanism and Wald tests to check for short-run or long-run relationship among the variables. The results indicate that the variables are cointegrated. The VECM suggested no long-run causality from all the variables to CO2 emissions. Wald tests indicate no short-run causality also from FDI, exports, imports, and energy consumption to CO2 emissions but existence of short-run causality from trade openness to CO2 emissions. No long-run or short-run causality from FDI to CO2 emissions indicate the non-existence of Pollution Haven Hypothesis in India.