Stationary of carbon emissions as an indicator of environmental degradation: Carbon hysteresis hypothesis

This study employs fourier panel unit root test to investigate the series of CO2 emissions as a proxy for environmental degredation and its unit root features by considering a new test developed by Bahmani-Oskooee et al. (2014) according to whom it simultaneously takes into account both sharp and smooth breaks. Furthermore, in this study, it is proposed that there are two carbon hysteries (negative and positive) based on the stationary features of the series of CO2 emmissions. There is no influence of hysteresis or path dependence if the series of CO2 is stationary. However, it should be investigated which carbon hysteresis (positive or negative) is valid when there exist a presence of a unit root in the series of CO2 emissions. To do so, the modelling starts with CO2 and it is defined which hysteresis valids. The empirical analysis focuses on the investigation of carbon hysteresis hypothesis for four income-group countries (low, low-middle, high-middle and high) based on the classification the World Bank. Empricial results show that there is existence of cross sectional correlation in all income groups. In addition, carbon hysteresis is not valid when country groups are considered separately as a panel. That is, there is no the effect of hysteresis in the country groups. When investigating whether individually countries are linked to the hysteria, it is found that there is (1) % 52 of hysteresis effects for the low-income countries; (2) % 23 for the low-middle-income countries: and (3) % 54 for the high-middle-income countries; finally (4) % 55 for the high-income countries. As a result, the study provides policy recommendations for the environmental pollution indicators such as CO2 emissions in line with the carbon neutrality targets.