The effects of economic growth and innovation on CO2 emissions in different regions

Economic growth and economic energy consumption have received greater attention due to its contribution to global CO2 emissions in recent decades. The literature on CO2 emissions and innovation for regional differences is very scanty as there is not enough study that considered different regions in a single analysis. We adopt a holistic approach by incorporating different regions so as to assess how innovation contributes to emission reduction. The study, therefore, examined the effects of innovation and economic growth on CO2 emissions for 18 developed and developing countries over the period of 1990 to 2016. The study used panel technique capable of dealing with cross-section dependence effects: panel cross-sectional augmented Dickey-Fuller (CADF) unit root to determine the order of integration, Westerlund cointegration tests confirmed that the variables are co-integrated. We employed panel fully modified ordinary least square (FMOLS) and panel dynamic ordinary least square (DOLS) to estimate the long-run relationship. The results show that energy consumption increases CO2 emissions at all panel levels. However, innovation reduces CO2 emissions in G6 while it increases emissions in the MENA and the BRICS countries. Environmental Kuznets curve (EKC) hypothesis is valid for the BRICS. The pollution haven hypothesis (PHH) and pollution halo effect were confirmed at different panel levels. Based on the findings different policy recommendations are proposed.