The relationship between CO₂ emissions and economic growth: The case of Korea with nonlinear evidence

Using STAR models, we investigate the nonlinear dynamic properties and the interdependence of CO₂ emissions and economic growth for Korea. The estimation results indicate that the growth rate of both CO₂ emissions and industrial production exhibit a significant nonlinear asymmetric dynamics. While the linear Granger causality test finds no causality in any direction, the results of the nonlinear Granger causality tests show a two-way causality between CO₂ emissions and economic growth. The strong mutual causation between CO₂ emissions and economic activities indicates that the economic impact from CO₂ mitigation is expected to be higher in Korea. This suggests that the appropriate energy and environmental policy be to mitigate CO₂ emissions while having less impact on the economy.