Stochastic Convergence in Per Capita Carbon Dioxide (CO2) Emissions: Evidence from OECD Countries

Abstract

This study analyzes the validity of stochastic convergence hypothesis in relative per capita CO2 emissions in OECD (Organization for Economic Cooperation and Development) countries for the period 1960-2013. In other words, it is aimed to reveal the nature of shocks to relative per capita CO2 emissions. As such, divergence holds if shocks are permanent, whereas convergence holds if shocks are temporary. To that aim, the two-break LM (Lagrange multiplier) and three-step RALS-LM (residual augmented least squares Lagrange multiplier) unit root tests are employed. The results mostly provide evidence of convergence in case of two breaks. However, when structural breaks are not taken into consideration, divergence gains empirical validity. From the viewpoint of government policy, these results indicate that energy usage or environmental protection policies of OECD countries have not long-run impacts on the relative per capita emissions series of the sample countries. Concerning the break dates, the first breaks mostly cumulated around the two energy crises period, whereas the second breaks generally occurred in the 1990s.