Nexus between selected macroeconomic variables and carbon emission in Kenya

doi:10.1016/j.regsus.2022.10.003

Abstract

Abstract:

Agriculture is not only influenced by climate change, but it is also one of the significant contributors of CO₂ emission. Understanding CO₂ emission and macroeconomic variables is critical to solving the challenges and threats faced by Kenya’s agriculture and environment. This study used the Environmental Kuznets Curve (EKC) hypothesis and the autoregressive distribution lag model (ADLM) to analyze the relationships of CO₂ emission with agricultural output, government direct investment, trade openness, and inflation rate in Kenya from 1983 to 2019. The study found that there exists a positive (direct) relationship between CO₂ emission and foreign direct investment in the long run in Kenya. Additionally, CO₂ emission and trade openness have a negative (indirect) and statistically significant relationship after the error correction term adjustment in the long run. Moreover, the relationship between CO₂ emission and agricultural output is positive (direct) and statistically significant in the long run. There is a positive (direct) and statistically insignificant relationship between CO₂ emission and inflation rate in the short run. Notably, the EKC hypothesis indicated that the Kenya’s economy is still on the environmental degradation trade-off through the gradual increase of both CO₂ emission and agricultural output. Our results are important to Kenya’s economy because the derived insights will assist in relevant departments to formulate sustainable strategies to minimize environmental degradation.

Key words: CO₂ emission, Agricultural output Foreign direct investment, Trade openness Inflation rate, Environmental Kuznets Curve (EKC), Autoregressive distribution lag model (ADLM)

James NJUMWA, Ernest SAINA, Alfred SEREM. Nexus between selected macroeconomic variables and carbon emission in Kenya[J]. Regional Sustainability, 2022, 3(3): 233-243.

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Variable	T statistic	P-value	Conclusion
Log(CO₂ emission)	1.337	0.9968	At level
Log(agricultural output)	-0.758	0.8311	At level
Log(foreign direct investment)	-5.183	0.0000^***	At level
Log(inflation rate)	-3.815	0.0028^***	At level
Log(trade openness)	-0.759	0.8310	At level

Variable	T statistic	P-value	Conclusion
Log(CO₂ emission)	1.540	0.9977	At level
log(agricultural output)	-1.283	0.6371	At level
Log(foreign direct investment)	-5.237	0.0000^***	At level
Log(inflation rate)	-3.921	0.0019^***	At level
Log(trade openness)	-0.912	0.7840	At level

Variable	T statistic	P-value	Conclusion
Differenced CO₂ emission	-4.375	0.0003^***	At first difference
Differenced agricultural output	-4.399	0.0003^***	At first difference
Differenced foreign direct investment	-9.801	0.0000^***	At first difference
Differenced inflation rate	-8.802	0.0000^***	At first difference
Differenced trade openness	-5.669	0.0000^***	At first difference

Variable	T statistic	P-value	Conclusion
Differenced CO₂ emission	-4.298	0.0004^***	At first difference
Differenced agricultural output	-4.400	0.0003^***	At first difference
Differenced foreign direct investment	-16.387	0.0000^***	At first difference
Differenced inflation rate	-9.268	0.0000^***	At first difference
Differenced trade openness	-5.666	0.0000^***	At first difference

Variable	Observations^#	Lags	T statistic	Break year
Differenced CO₂ emission	17	2	-3.887	1999
Differenced agricultural output	26	0	-5.320^***	2008
Differenced foreign direct investment	32	2	-8.790	2014
Differenced inflation rate	21	1	-8.342	2003
Differenced trade openness	18	0	-6.110	2000