Symmetric and asymmetric impact of economic growth, capital formation, renewable and non-renewable energy consumption on environment in OECD countries

Abstract

This study examines the symmetric (linear) and asymmetric (nonlinear) impact of economic growth (EG), capital formation (CF), renewable and non-renewable energy (NRE) consumption on CO2 emissions and ecological footprint (EF) of seventeen OECD countries spanning data from 1970 to 2016. The autoregressive distributed lag (ARDL) model is used to examine the symmetric impact and the nonlinear autoregressive distributed lag (NARDL) model is employed to explore the asymmetric impact of the variables on the environment. The results indicate that economic growth and gross capital formation dampens environmental quality in the OECD region over the sampled period. Our estimation using the ARDL model shows that a 1% increase in renewable energy (RE) is projected to reduce CO2 emission by 0.2% and a 1% increase in NRE is estimated to increase CO2 emission by 1.08%. Similarly, a 1% rise in EG and NRE is expected to increase ecological footprint (EF) by 0.10% and 0.53%, respectively. Estimation using NARDL decomposed EG with positive (negative) shocks shows that a 1% increase (decrease) in EG is expected to reduce CO2 emissions by 0.4% (0.16%). Similarly, 1% positive (negative) shock in RE is expected to decrease CO2 emission by 0.5%. The findings indicate that conventional energy obtained from fossil fuels is observed to worsen the environment. Interestingly, renewable energy consumption enhances environmental quality for both fitted models with CO2 emission and ecological footprint. This is insightful for stakeholders and government administrators in the region. This demonstrates the importance of a paradigm shift towards renewable energy consumption in the OECD countries to improve economic growth and productive capital stock. This finding also aligns with the non-linear investigation of the pivotal role of renewable energy consumption for a cleaner environment.