The relationship between CO2 emissions and economic growth: The case of Korea with nonlinear evidence

Using STAR models, we investigate the nonlinear dynamic properties and the interdependence of CO2 emissions and economic growth for Korea. The estimation results indicate that the growth rate of both CO2 emissions and industrial production exhibit a significant nonlinear asymmetric dynamics. While the linear Granger causality test finds no causality in any direction, the results of the nonlinear Granger causality tests show a two-way causality between CO2 emissions and economic growth. The strong mutual causation between CO2 emissions and economic activities indicates that the economic impact from CO2 mitigation is expected to be higher in Korea. This suggests that the appropriate energy and environmental policy be to mitigate CO2 emissions while having less impact on the economy. (C) 2010 Elsevier Ltd. All rights reserved.