Energy Consumption, CO2 Emissions, Urbanization and Financial Development in Bangladesh: Vector Error Correction Model

Journal of Global Economics, Management and Business Research, Vol. 9, No. 4, Page 178-189

Posted: 12 Dec 2017

See all articles by Khairul Alom

Khairul Alom

Southeast University (Bangladesh) - School of Business Studies

A.N.M. Meshquat Uddin

North South University

Nazrul Islam

Canadian University of Bangladesh

Date Written: October 29, 2017

Abstract

This paper examines empirical relationship among the variables of financial development, CO2 emissions, urbanization, industrial value addition, agricultural value addition and energy consumption in the context of Bangladesh using the data of 1985-2015. Findings of Johansen co-integration test indicates that long run relationship exists among the variables of CO2 emissions, financial development, urbanization, industrial value addition, agricultural value addition and energy consumption. Whereas, Granger causality results show that unidirectional causality exists among the variables of CO2 emissions to agriculture value addition, CO2 emissions to energy consumption, agriculture value addition to financial development, agriculture value edition to industry value addition, financial development to CO2 emissions, industry value addition to energy consumption. However, this study fails to establish any relationship between CO2 emissions and urbanization, urbanization and energy consumption in short run in the context of Bangladesh. Results of Vector Error Correction Model (VECM) confirm that except financial development all the explanatory variables are statistically insignificant in the short run. However, the error correction term (ECT) is statistically significant and negative sign. This indicates that CO2 emission adjusted 37.60% within the year when deviated from equilibrium and the adjustment speed is significant.

Keywords: carbon emission; energy consumption; financial development; urbanization; co-integration; VECM

Suggested Citation

Alom, Khairul and Uddin, A.N.M. Meshquat and Islam, Nazrul, Energy Consumption, CO2 Emissions, Urbanization and Financial Development in Bangladesh: Vector Error Correction Model (October 29, 2017). Journal of Global Economics, Management and Business Research, Vol. 9, No. 4, Page 178-189, Available at SSRN: https://ssrn.com/abstract=3079969

Khairul Alom

Southeast University (Bangladesh) - School of Business Studies

Road: 18, House
64, Block: B Banani
Dhaka, 1213
Bangladesh

A.N.M. Meshquat Uddin

North South University

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Bangladesh, Dhaka 1229 1229
Bangladesh

Nazrul Islam (Contact Author)

Canadian University of Bangladesh ( email )

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Dhaka, 1213
Bangladesh
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