How economic growth and energy consumption contribute to environmental degradation?

Abstract

This paper explores the relationship between environmental degradation (measured by the ratio of carbon dioxide emissions), economic growth and energy consumption in case of Hungary over the period of 1990-2014 by annual data. To ascertain the integrating properties of the variables, the Zivot-Andrews unit root test was employed. The ARDL bounds testing approach and Gregory-Hansen structural break test have been adopted to test the relationship between the variables in the presence of structural break. Structural breaks occurred in the first half of the 2000s in the series of carbon dioxide emissions and energy consumption, while economic growth has a structural break in the middle of 1990s. My research shows that carbon dioxide emissions are influenced in several ways by the above-mentioned factors. The impact of energy consumption is time variant on carbon dioxide emissions and statistically significant in the short and long term. One-year delay, increasing in energy consumption results decline in carbon dioxide emissions while increasing in level of energy consumption is linked with increases in economic growth. The economic growth also has an important role in carbon dioxide emissions. Its increasing contributes to reduce carbon dioxide emissions in the short and long run. It is concluded that economic growth and energy consumption are in the background of the air quality and economic growth mitigates carbon dioxide emissions.