Energy consumption, CO2 emissions, economic growth, and foreign trade relationship in Cyprus and Malta

Abstract

This paper examines the long-run and causal relationship issues between economic growth, carbon emissions, energy consumption, foreign trade ratio, and employment ratio in Cyprus and Malta by using autoregressive distributed lag (ARDL) bounds testing approach of cointegration and error-correction-based Granger causality models. Empirical results over the period 1980-2006 suggest an evidence of a long-run relationship between the variables at 5% significance level only in Malta. Thus, Granger causality models are estimated only for Malta. Results for the existence and direction of Granger causality show that the causality runs from carbon emissions, energy consumption, foreign trade ratio, and employment ratio to economic growth but not vice versa in Malta. The overall results indicate that energy conservation policies, such as rationing energy consumption and controlling carbon dioxide emissions, are likely to have no adverse effect on the real output growth of Malta.