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The technical decomposition of carbon emissions and the concerns about FDI and trade openness effects in the United States
Journal article   Open access   Peer reviewed

The technical decomposition of carbon emissions and the concerns about FDI and trade openness effects in the United States

Muhammad Shahbaz, Giray Gozgor, Philip Kofi Adom and Shawkat Hammoudeh
International economics (Paris), v 159
Oct 2019
DOI: https://doi.org/10.1016/j.inteco.2019.05.001
url
https://mpra.ub.uni-muenchen.de/93720/1/MPRA_paper_93720.pdfView
SubmittedOpen Access (License Unspecified),  Open

Abstract

Carbon emissions Composition effect Foreign direct investment International trade Scale effect Technique effect
This paper decomposes the environmental Kuznets curve into the scale, technique and composition effects while incorporating the roles of energy consumption, trade openness and foreign direct investments (FDI) effects in a carbon emissions function for the United States (U.S.). We have incorporated information about unknown structural breaks into this function while investigating the cointegration between the related variables. The empirical results confirm the existence of cointegration between the variables in the presence of structural breaks. Moreover, the scale effect increases carbon dioxide emissions, but the technique effect reduces it as expected. Energy consumption also adds to carbon emissions, while the composition effect improves environmental quality by lowering carbon dioxide emissions. Further, trade openness decreases carbon dioxide emissions. However, increases in FDI hamper environmental quality by increasing carbon emissions. To reduce the level of carbon emissions, the technical processes of production should be improved by investing in technological innovations and capital stock and upgrading environmental regulations to channel in environment-friendly FDIs. There should also be a transformation of the energy consumption structure towards cleaner energy sources. •We consider the scale, technique, and composition effects in CO2 emission function.•We examine the role of energy consumption, trade openness, and FDI on CO2 emissions in the U.S.•The scale effect increases CO2 emissions, but the technique effect reduces CO2 emissions.•Energy consumption promotes CO2 emissions, and the composition effect decreases CO2 emissions.•Trade openness decreases CO2 emissions, but FDI increases CO2 emissions.

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