co2 Emissions, Energy Consumption, Economic Growth and fdi PDF
Preview co2 Emissions, Energy Consumption, Economic Growth and fdi
co Emissions, Energy Consumption, 2 Economic Growth and fdi in Vietnam DinhHongLinh ChungYuanChristianUniversity,Taiwan [email protected] Shih-MoLin ChungYuanChristianUniversity,Taiwan [email protected] This study examines the dynamic relationships between co emissions, 2 energy consumption, fdi and economic growth for Vietnam in the pe- riodfrom1980to2010basedonEnvironmentalKuznetsCurve(ekc)ap- proach,cointegration,andGrangercausalitytests.Theempiricalresultsdo notsupportthe ekc theoryinVietnam.However,thecointegrationand Grangercausalitytestresultsindicateadynamicrelationshipamongco 2 emissions, energy consumption, fdi and economic growth. The short- runbidirectionalrelationshipbetweenVietnam’sincomeand fdi inflows impliesthattheincreaseinVietnam’sincomewillattractmorecapitalfrom overseas. Inversely, fdi inflow is also driver of national income growth. Theexistenceofbidirectionalrelationshipsinthelong-runprovidesim- portantpolicyimplications.Werecommendimplementingadualstrategy ofincreasinginvestmentinenergyinfrastructureandpromulgatingenergy conservationpoliciestoincreaseenergyefficiencyandreducewastageof energy. KeyWords: ekc,Cointegration,GrangerCausality,pollutionheaven, Vietnam’sco emissions,Vietnam’sEnergyconsumption, 2 fdi inflows,income jel Classification: c33, o44, o53 Introduction VietnamisoneofthefastestgrowingemergingeconomiesinAsia;aver- agingaround7.1annual gdp growthfrom2006to2009,6.8in2010, and6.0in2011.1However,rapideconomicgrowthisusuallyaccompa- niedbyincreasedenergyconsumptionandmaycauseunexpectedeffects on energy resources and the environment. Vietnam’s energy consump- tion in 2010wasfour timeshigherthan itsconsumption in 1980, rising from14.39thousandkilotonnes(kt)oilequivalence(1980)to58.91thou- sandkt(2010).co emissionsgrewsignificantlyfasterthanthegrowthof 2 ManagingGlobalTransitions12(3):219–232 220 DinhHongLinhandShih-MoLin energyconsumption,from16.82thousandktcarbondioxideemissionsto 150.23thousandkt;anincreaseofalmosttentimesforthesameperiod.2 There are many reasons that may explain the rapid growth of Viet- nam’seconomy, fdi inflowsbeingoneofthemostimportantindicators. It has increased from us$1.4 billion in 1980 to us$1.65 billion in 1990; us$20.6 billion in 2000 and us$65.3 billion in 2010. The average fdi annual growth rates observed for three periods are: 16 for 1980–1990; 29.3and12.4for1991–2000and2001–2010,respectively.Thisgrowth in fdi can be attributed to Vietnam’s political, social, and macroeco- nomic stability. Moreover, a country with 90 million people provides a hugepotentialconsumermarket.Itslaborforceoffersyoung,skilled,and relatively well-educated workers, with labor costs that are competitive with other economies in the region. Its geographic location, abundant naturalresources,andfavorablepoliciesareotherfactorsthatattractin- vestments from many countries into Vietnam, propelling its economic developmentforward. Many previous papers have investigated the contribution of fdi to economic development of different countries, such as those of Bende- Nabendeetal.(2000),Alfaroetal.(2004),andWang(2009).Vu(2008) and Anwar and Nguyen (2010) examined fdi’s influence on Vietnam’s economicgrowth.Morerecentliteraturestudiedtherelationshipsamong energy consumption, economic growth, and fdi. Acharyya (2009) and PaoandTsai(2011)examinedthemultivariateGrangercausalityassoci- ationamongco emissions,energyconsumption, fdi,and gdp forIn- 2 diaand bric,respectively.NguyenandAmin(2002)analyzedtheeffect of fdi onenergydemandandenvironmentaldegradationinHanoi,the capital city of Vietnam. However, the samples used by these studies are limited, focusing only on one city, one country or on developing coun- tries.Tothebestofourknowledge,noempiricalresearchhasbeenun- dertakenyetabouttherelationshipsamongco emissions, energycon- 2 sumption,economicgrowthand fdi inVietnam. Thispaperinvestigatesthecausalityrelationshipsamongenvironmen- taldegradation–energyconsumption–economicgrowth– fdi inflows in this country from 1980 to 2010. Investigating the causal nexuses be- tweentheabovevariables,theestimatedresultsshowthatenvironmental pollutantsareaffectedbytheusageofenergy,economicdevelopmentand thechangesin fdi withinmorethan30years.Ourfindingswillprovide valuablepolicyimplicationsforVietnamandotherdevelopingcountries. Theresearchiswrittenasfollows:thesecondsectionexplainsliterature ManagingGlobalTransitions EconomicGrowthandEnvironmentinVietnam 221 reviewandhypotheses,thethirdsectiondemonstratesmethodologyand empiricalresults,andthefourthsectionpresentstheconclusion. LiteratureReviewandHypotheses The causal relationship between energy consumption and economic growth has attracted much attention from economists and scholars be- causethisrelationshiphassignificantpolicyimplications.KraftandKraft (1978)discovered unidirectionalcausalityfromincometoenergyusage intheUnitedStatesbyusingsampledatafortheperiod1947–1974.This findinghascontinuouslybeensupportedbyotherstudies.Forinstance, Chen et al. (2007) has detected the existence of co-movement between environmentalproductivityandincomeinChina.Lee(2005;2006)dis- playedthattherehavebeenlong-runandshort-runcausalitiesfromen- ergyconsumptionto gdp,butdidnotshowevidenceofviceversa.This finding suggested that economic growth might have adverse effects on energy conservation, which may be a transitory or permanent trend in developing countries. The two-way directional causality has been rep- resented in the case of the us, and one-way directional causality from energyconsumptiontoincomewasfoundforotherdevelopedcountries. However,thedetrimentaleffectsof economicgrowthtoenergyconser- vationaredifferentiatedamongthesecountries. The relationship between economic growth and environmental pol- lutants has been analyzed by another pervasive approach known as the EnvironmentalKuznetsCurvetheory.The ekc theoryclaimesthatthe environmental pollutants has increased at the early stages of economic growthbuttendstoreversebeyondacertainlevelofincomepercapita. This suggests that there is an inverted U-shaped relationship between environmental degradation and other economic variables. Grossman andKrueger(1991)measuredincome’spotentialenvironmentalimpacts withintheNorthAmericanfreetradeagreement(nafta).Managiand Jena (2008) applied ekc hypothesis and found the appearance of rela- tionship betweenenvironmentalproductivity andincomein India.Pao andTsai(2011)employed ekc theoryandrecognizedthecausalityrela- tionships among co emission, energy consumption and gdp in bric 2 countries, based on the time series dynamic characteristics of these in- dicators.Thisfindingprovidespolicyimplicationsfordevelopingcoun- tries,onhowtoqualifyforeigninvestmentssothattheycanmitigateits harmful effects on the environment. In addition, the study of Sari and Soyta (2007) found that energy consumption has a significant relation- Volume12·Number3·Fall2014 222 DinhHongLinhandShih-MoLin ship with economic development. Other authors such as Keppler and Mansanet-Bataller(2010),NarayanandNarayan(2010)andPaoandTsai (2010)statedthateconomicgrowthandenergyconsumptionareaccom- paniedwithenvironmentaldegradationinbothdevelopedanddevelop- ingcountries.ThesestudieshavegeneratedaninvertedU-shapedcurve representingpollutantmagnitude,butthereisnoinevitabilityaboutthat. CoondooandDinda(2008)andAkbostancietal.(2009)testedthe ekc theory focusing on time series dynamics of income and co emissions. 2 The relationship between co and income is revealed in the long-run 2 basedontimeseriesanalysis,butitalsorevealedanN-shapedrelation- shipfortwokindsofpollutantsinTurkey. Themaincontributionofthispaperisitteststhe ekc hypothesisand examinesthecausalityrelationshipsamongco emissions–energycon- 2 sumption–economicgrowth– fdi inVietnam.Weaccordinglyintro- ducetwohypothesesasfollows: h1 In Vietnam, co emissions increase in the early stages of economic 2 growth, but tend to decrease beyond a certain level of income per capita. co emissions, energy consumption, and economic growth 2 havecausalityrelationshipswitheachotherandcanbeobserved. Inrecentyears, fdi isconsideredasanimportantdrivingforceofeco- nomic development. Rapid fdi inflows have raised questions whether there is a relationship between fdi, energy consumption, and air pol- lution deterioration. The issue of fdi, economic growth, and environ- mentaldeteriorationhasbeenreceivingincreasedattentionsincethelast decade. Several studies have applied time series dynamic with Granger causality test and explored if there are significant nexuses among fdi, economicgrowth,energyintensity,andco emissions.Zang(2001)and 2 Kim and Seo (2003) applied a vector autoregression model to present the dynamic correlations between fdi, domestic investment, and out- put.Theyfoundthateconomicgrowthhasastatisticallysignificantand highly persistent influence on fdi inflows. Li and Liu (2005) found a strong complementary connection between fdi and economic growth, notonlyindevelopedbutalsoindevelopingcountries.Chakrabortyand Nunnenkamp (2008) discovered the spillover effects between fdi and India’s economic output both in the short-run and long-run. Sadorsky (2010)showedevidencethatnet fdi hasastatisticallysignificantimpact onenergydemandfromasampleof22emergingcountries.Moreover,the relationship between fdi, energy usage, and pollutants has been men- ManagingGlobalTransitions EconomicGrowthandEnvironmentinVietnam 223 tioned in many studies. For examples, Mielnik and Goldemberg (2002) examinedthelinkagebetween fdi,energyconsumption,andco emis- 2 sions from a sample of 20 developing countries, and found that energy intensity declines as fdi increases. Pao and Tsai’s (2011) findings sup- port the ekc hypothesis with evidence from bric. The results showed strong bidirectional causality between emissions and fdi, and signifi- cantunidirectionalrelationshipbetweenoutputand fdi.ForSoutheast Asia,ChandranandTang(2013)suggestedthelong-runassociationbe- tween fdi and co emissions within five asean countries (excluding 2 Vietnam). Based on these studies’ findings, we predict the relationship among fdi,economicgrowth,energyconsumptionandco emissionsinViet- 2 nam,andassumethat: h2 fdi, economic growth, co emissions and energy consumption ex- 2 hibitcausalrelationshipswitheachotherinVietnam. MethodologyandEmpiricalResults data and variable form This study used annual gdp per capita, annual fdi inflows and stocks per capita measured by us Dollars at current prices and current ex- changerates.Alldatasetswereobtainedfrom unctad statisticsdataba- se.3 in represents gdp percapitaland fdi standsforinflowsandstocks per capita. The energy consumption and co emissions were collected 2 fromtheWorldBankIndicatordatabase.4Theunitthatmeasuresenergy consumption and co emissions is kt oil equivalence and kt co emis- 2 2 sions,respectively.Allvariablesaredatedfrom1980to2010,andallare annualdata. Thestandard ekc regressionmodelhasnaturallogarithmicformfor both dependent and independent variables. The logarithmic quadratic formisalsotakenforindependentvariables.Thenewvariablesinnatural logarithmicformarelnin for in,lnfdi for fdi,lnco forco emissions 2 2 andlnen forenergyconsumption. model ekc theory implies that the environmental impact is an inverted U- shaped function of income (in) and logarithm of the indicator is mod- eled as a quadratic function of the logarithm of in. Based on the ekc hypothesis,alinearlogarithmquadraticmodelisformedtoperformthe Volume12·Number3·Fall2014 224 DinhHongLinhandShih-MoLin table1 UnitRootTestResults Test Statistic lnco lnen lnin lnin lnfdi 2 () t-statistic Level –. –.*** –. –. –. stdif. –.*** –.** –.** –.** –.** () t-statistic Level –. –. –.*** –. –. stdif. –.*** –.*** –.*** –.*** –.*** notes Rowheadingsareasfollows:() adftest,()Dickey-Fuller glstest.**and ***denotesandlevelofsignificance,respectively. relationships between co emissions, energy consumption, economic 2 growthand fdi asfollows: lnco = β +β lnen +β lnin +β lnin2+β lnfdi +ν , (1) 2t 0 1 t 2 t 3 t 4 t t wheret = 1,...,Tdenotesthetimeperiod,X isthevectorofexplanatory t variablesandν istheerrortermwhichisassumedtobeserialuncorrela- t tion.Accordingtothe ekc theory,thisstudyexpectsthesignsoflnen , t lnin are positive because the higher ratio in energy consumption and t income,thegreaterco emissions.Incontrast,weexpectthatlnin2 will 2 t haveanegativesign. unit root test Ascanbeseen,table1showstheAugmentedDickey-FullerandDickey- Fuller gls unitroottestswhichareselectedtotestallserieswithtrend andintercept.Thenullhypothesisassumedthatthedataserieshasaunit root.Theresultsexhibitthatallvariablesarestationaryatthefirstdiffer- enceat1and5significancelevels,thismeansthatthenullhypothesis of a unit root is rejected.Hence,all data series are integrated of order 1 (I(1))andappropriateforfurthertesting. Furthermore, assuming that vector Z includes lnco and all other t 2t variablesinmodel(2).Fromtheunitroottestresults,allcomponentsof thevectorZ areI(1),orthefirstdifferenceΔZ = (1−L)Z isintegrated t t t oforderzero;whereListhelagoperatorofZ and(1−L)isthefirstdif- t ference. Thus, cointegration test should be applied to find the causality relationshipsamongthesecomponents. cointegration test Johansen (1991) cointegration test is employed to examine whether the seriesarecointegrated.Forexample,Gonzalo(1994)pointedoutthatJo- ManagingGlobalTransitions EconomicGrowthandEnvironmentinVietnam 225 table2 ResultsoftheJohansenCointegrationTest Tracetest Maximumeigenvaluetest () () () () () () r=0 r≥1 .*** r=0 r=1 .*** r≤1 r≥2 .*** r=1 r=2 .*** r≤2 r≥3 .** r=2 r=3 .*** r≤3 r≥4 . r=3 r=4 . r≤4 r≥5 . r=4 r=5 . notes Columnheadingsareasfollows:()nullhypothesis,()alternativehypothesis, ()tracestatistic.Traceandmax-eigenstatisticscalculatedatlevel;**and***de- notesandlevelofsignificance,respectively.Probabilitiesarecomputedbyusing asymptoticChi-squaredistribution,andristhenumberofcointegrationequations.sic criteriaisusedtochoosethelaglength,maximumlaglengthsareseven. hansen test is the optimal one when error terms are not normally dis- tributed.MaddalaandWu(1999)suggestedtheimplicationofJohansen- Fishertestwhichallowedsomerelationshipstobecointegrated.Because all variables are integratedin the same order, this paper has applied Jo- hansentestinthetermofvectorautoregressivemodel.Johansencointe- gration test uses trace and maximum eigenvalue tests to determine the number of cointegration relationships. Table 2 shows the results of Jo- hansencointegrationtestwithnullandalternativehypotheses. Thetraceandmaximumeigenvaluestatisticindicatethatthereisadif- ferenceinsignificantlevelofeachcointegrationequation.Themaximum eigenvaluetestiscarriedoutwithseparatetestsoneacheigenvalueand hasthesharperalternativehypothesis.Itsresultsshouldbeusedinchoos- ingthenumberofcointegratedrelationships.Basedonmax-eigenstatis- tic, there are three significant cointegrating vectors at 1 and 5 levels. Thefindingsindicateheexistenceoflong-runrelationshipamongvari- ablesandthespuriousregressionisavoided.Theexistenceofcointegra- tion among model (2) variables suggests that the ordinary least square (ols)estimationisthebestestimatorinaccordancewiththefindingsof AlvesandBueno(2003). Theestimatedequationofmodel2using ols ispresentedintable3. The results from equation (3) illustrate that the estimated coefficient of lnen present the same sign as expected at 1 level of significance. The estimated signs of lnin and lnin2 follow the expectation of hypothesis 1, which indicate that co emissions increase in the early stages of eco- 2 nomic growth, but tend to reverse beyond certain levels of income per Volume12·Number3·Fall2014 226 DinhHongLinhandShih-MoLin table3 EstimatedEquationofModel2Usingols lnco = –. +.lnen +.lnin –.lnin –.lnfdi () 2 2 se (.) (.) (.) (.) (.) t-stat –.** .*** . –. –. notes **and***denoteandlevelofsignificance,respectively. capita.However,theestimatedcoefficientsoflnin andlnin2arestatisti- callyinsignificant.Asaresult,wecannotconcludethat ekc hypothesis is supported by the correlation between co emissions and income in 2 Vietnamduringtheperiod1980to2010.Furthermore,theestimatedre- sults emphasize that co emissions is elastic with energy consumption, 2 in which a 1 increase in energy consumption will increase co emis- 2 sions by 1.954, or expressed differently, a one-unit increase in energy consumptionincreasesco emissions by1.954percentagepoints.The 2 estimatedcoefficients magnitude of lnfdi hasa negative (–0.008) sign. Althoughthismagnitudeisverysmallbutthenegativesignsuggeststhat fdi canstilleffecttoreduceenvironmentdegradation.However,thises- timatedcoefficientoflnfdi isinsignificant,meaningthatthereisnoev- idencewhichshows fdi isinelasticinreducingco emissions. 2 granger causality test The cointegration test has performed the existence of long–run equi- librium relationships among co emissions, energy consumption, eco- 2 nomicgrowthand fdi.Grangercausalitytestinthetermofvectorerror- correctionmodel(vecm)willrevealwhetherhistoricalvalueofonevari- ablemightaffectthecurrentvalueofothervariables.Theseresultsdetect thedirectionsofcausalrelationshipsamongvariablesinmodel(2).The Granger causality test in the term of vecm framework is described as follows: ΔYt = α10+α11(Yt−1−Xt−1)+σ11ΔYt−p+σ12ΔXt−p +β1Δzt−p+εt ΔXt = α20+α21(Yt−1−Xt−1)+σ21ΔYt−p+σ22ΔXt−p +β2Δzt−p+νt (2) wheret = 1,...,Tdenotesthetimeperiod,Δrepresentschangeoperator, Y andX isapairofendogenousvariables,zisthevectorofothervari- t t ables;β1andβ2arevectorsofitsparametersineachequation;ε ,ν are t t twoerrorterms;and(Yt−1−Xt−1)istheerrorcorrectionterm(ect).α11 ManagingGlobalTransitions EconomicGrowthandEnvironmentinVietnam 227 andα aretheparametersthatshowthespeedofadjustmenttothelong- 21 runequilibriumwhichmightconfirmthelong-runrelationshipamong variables. Inthisarticle,thepairsof(X ,Y )include(lnco ,lnen),(lnco ,lnin t t 2 2 andlnin2),(lnco ,lnfdi),andotherpairsarecombinationsofeachvari- 2 ablewithoneortwoothervariablessuchaslnen withlnin andlnin2or withlnfdi andsoforth. Table4representsshort-runGrangercausalityresultswiththenullhy- pothesisthatthereisnocausalrelationshipineachpairofvariables.The results support hypothesis 2, indicating the existence of short-run rela- tionshipsamongvariables.Therearetwobidirectionalcausalityrelation- shipsbetweenVietnam’sincomeand fdi inflowsandbetweenVietnam’s energy consumption and fdi inflows, which can be interpreted as fol- lows:therapiddevelopmentofVietnameseeconomyoverthelastthree decades has been driven by the increase in fdi inflows. The higher in- comeinturnattractsmoreforeigninvestors.Moreover,increasingeco- nomicactivitybroughtaboutby fdi inflowsrequiresmoreenergy,and the sufficient energy supply in turn attracts more foreign investment. Thus,theeffectsof fdi varywidelyacrosssectors. fdi hasrisenupcon- siderably since recent decades, and has close relationships with nation’s incomeandenergyconsumption.Thefindingsareinlinewiththeprevi- ousstudiesofZang(2001)andKimandSeo(2003).Theshort-runrela- tionshipsbetween fdi andoutputarealsoimpliedintheresearchofLi andLiu(2005)fordevelopedanddevelopingcountriesandChakraborty andNunnenkamp(2008)instudyofIndianeconomy.Ontheotherhand, the unidirectional causations are found from co emissions to fdi; in- 2 cometoco emissions andincometoenergyconsumption.Thesesup- 2 porttheinvestigationsofSadorsky(2010)andMielnikandGoldemberg (2002),whichstatedthatenvironmentalpollutanthasunidirectionalef- fectsonpromoting fdi inflows. Thesignificanceoftheestimatedcoefficientsof ectsfrommodel(4) expresseslong-run causal nexusamongdata series, whichsupportshy- potheses 1 and 2. Table 5 has exploited four bidirectional causality rela- tionshipsbetween:co emissionsandincome;energyconsumptionand 2 income;energyconsumptionand fdi;incomeand fdi.Thesefindings areconsistentwiththoseofChenetal.(2007),whichfoundanassocia- tionbetweenenvironmentandincomeinChina,andPaoandTsai(2011) in their study of the same phenomenon in bric. The relationship be- tween energy consumption and income is also in accordance with the Volume12·Number3·Fall2014 228 DinhHongLinhandShih-MoLin table4 ResultsofShort-RunGrangerCausalityTest d(lnco ) d(lnen) d(lnin)† d(lnfdi) 2 d(lnco )→ . . .*** 2 d(lnen)→ . . .** d(lnin)→ .* .** .** d(lnin)→ .* .*** .** d(lnfdi)→ . .* .** notes †and d(lnin);*,**and***denote,andlevelofsignificance,re- spectively;→presentscausalitydirectionfromXtoY;↔detectsbidirectionalrelation- shipbetweenXandY. findingsofKepplerandMansanet-Bataller(2010),NarayanandNarayan (2010) and Pao and Tsai (2010). On the other hand, the results indicate oneunidirectionalcausalityrelationshipfromco emissionsto fdi in- 2 flows,whichimpliesthattherelativelylowerenvironmentalstandardhas attracted fdi.Thebidirectionalcausalitybetweeneconomicgrowthand energyusageimplies thatthesevariablesarejointly determinedandaf- fect each other simultaneously. Furthermore, the bidirectional causali- tiesbetweenco emissionsandenergyconsumptionwithincomeimply 2 thatVietnamhasbeendevelopingitseconomythroughincreasingitsen- ergyconsumption.Withtheweaknessinenvironmentalprotectionreg- ulations,theentryofinefficientenergytechnologiesmightleadtoenergy wastageandenvironmentalpollution. Conclusion Thispaperteststhe ekc theoryinVietnam’seconomy.Basedontheem- pirical results, we find that when income per capita is at 0.8 (in loga- rithms) or 2,226 us dollars, co emissions begin to decline. However, 2 thisestimatedresultisstatisticallyinsignificant.Thismeansthatthedata does not provide enough evidence to conclude that ekc hypothesis is confirmedinVietnam’seconomy. Second,thisstudyinvestigatesthedynamicrelationshipbetweenco 2 emissions, energy consumption, fdi and economic growth in Vietnam fortheperiod1980to2010.ByusingtheGrangercausalitytestinthecon- textof vecm,thispaperfoundtwoshort-runbidirectionalrelationships between fdi inflows with Vietnam’s income and energy consumption. Wealsofoundfourbidirectionalcausalityrelationshipsinthelong-run between:co andincome;energyconsumptionandincome;energycon- 2 ManagingGlobalTransitions
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