A Unified Theory and Evidence on Co2 Emissions Convergence

Abstract

The objective of this paper is to develop and test a sound theory of CO2 emissions convergence equation. To this end, we modify the Solow growth model by including depleting energy as a factor of production and by defining the channel through which CO2 emissions are created. Then, we empirically estimate the derived per capita CO2 emissions convergence equation employing system GMM approach on a panel dataset of 65 countries over the period 1970 to 2014. Results present strong evidence towards the existence of convergence for the global sample over the whole period. We also find that, in terms of per capita CO2 emissions, Annex I parties of UNFCCC converge, while non-Annex countries diverge. Our robustness check via stochastic convergence tests confirms our system GMM results for Annex I countries.