CARBON EMISSION REDUCTION, ECONOMIC GROWTH, AND INTERNATIONAL SPILLOVER EFFECTS: EVIDENCE FROM A GVAR ANALYSIS

What the paper says

In the context of globalization, variations in carbon emission intensity and economic growth rates exhibit not only direct, reciprocal effects within countries but also indirect transmission mechanisms across borders. This paper applies a Global Vector Autoregressive (GVAR) model to quarterly data from 33 countries — including 8 Eurozone members — spanning 1990Q1 to 2019Q4. Although the literature on the carbon–growth nexus has expanded, most studies overlook cross-border spillovers. To our knowledge, this is the first study to use the GVAR framework to systematically examine global interdependencies between carbon emissions and economic growth. The results reveal that reductions in carbon emission intensity in developed economies often generate adverse spillovers, slowing economic growth in other countries. In response to negative growth shocks, some countries raise their emission intensity as a countercyclical measure, while others reduce emissions — possibly suggesting they have surpassed the turning point implied by the Environmental Kuznets Curve (EKC). These asymmetries point to differing national capacities and decarbonization stages. The findings underscore the need for sustained technological innovation, improvements in energy efficiency, and stronger international coordination in climate policy. Without more synchronized global efforts, the uneven pace of low-carbon transitions may impose additional economic and environmental costs across an increasingly interconnected world.