Revisit economic growth and CO2 emission nexus in G7 countries: mixed frequency VAR model

Applying a mixed frequency vector autoregressive (MF-VAR) approach, we examine relationships between CO2 emissions and economic growth from 1970Q1 to 2019Q4 among G7 countries. We incorporate primary energy consumption as a control variable, to avoid any bias from an omitted variable. Our empirical results, using forecast error variance decomposition and a Granger causality check, suggest that MF-VAR exhibits better explanatory ability over the more commonly used VAR model employing single frequency data. Results from LF-VAR exhibit a feedback loop connecting economic expansion and emissions of CO2 with one-way Granger causality from primary energy consumption to growth of the economies studied. MF-VAR model results also indicate that, in G7 countries, economic expansion exhibits a one-way causal link to CO2 emissions in Canada, UK, and US cases. Interestingly, MF-VAR shows feedback between economic expansion and primary energy use in Germany, while LF-VAR quantifies the link from economic growth to CO2 emissions in Canada and from CO2 to economic growth in the UK. Results raise implications for the G7 samples’ policymakers.