Eurasian Econ Rev (2016) 6:97–110

DOI 10.1007/s40822-015-0037-2

ORIGINAL PAPER

CO2 emissions and human development in OECD

countries: granger causality analysis with a panel data
approach

Serap Bedir1 • Vildan Merve Yilmaz1

Received: 25 March 2015 / Revised: 8 September 2015 / Accepted: 24 September 2015 /

Published online: 19 October 2015
 Eurasia Business and Economics Society 2015

Abstract Carbon dioxide (CO2) is a major greenhouse gas emitted through human
activities resulting from energy use. This study examines the causal relation
between the logarithms of the human development index and CO2 emissions in 33
Organization for Economic Co-operation and Development countries for
1992–2011. Moreover, it applies a new panel data approach developed by Konya
(2006). This approach is based on the seemingly unrelated regression system and
Wald tests with country-specific bootstrap critical values. The results obtained from
the Granger causality analysis support the growth hypothesis for Denmark, Ireland,
Israel, Italy, Japan, Korea, Luxembourg, Poland, Spain, Slovakia, Turkey, and the
U.S. In addition, they support the conservation hypothesis for Chile, Czech
Republic, Estonia, Finland, France, Greece, New Zealand, and Mexico. The feed-
back hypothesis is observed for Iceland, Norway, Portugal, and Switzerland as well
as the neutrality hypothesis of the other countries (Australia, Austria, Belgium,
Canada, Hungary, Netherlands, Slovenia, Sweden, and the UK). This implies that
conservation policies that are related to coal, gas, electricity, and oil consumption
can reduce CO2 emissions but may simultaneously hinder economic growth and
human living standards. However, if conservation policies are not implemented, the
detrimental effects of environmental degradation could also affect human living
standards. Therefore, policymakers must develop strategic plans to reduce carbon
emissions that do not negatively impact their constituents. One possible way to
achieve this is by increasing the efficiency of energy use.

& Serap Bedir

serap.bedir@erzurum.edu.tr
Vildan Merve Yilmaz
vildan.yilmaz@erzurum.edu.tr
1
Erzurum Technical University, Erzurum, Turkey

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98 Eurasian Econ Rev (2016) 6:97–110

Keywords CO2 emissions  Human development  Granger causality  Konya

methods

1 Introduction

In recent years, environmental pollution, greenhouse gases, and climate change

have been among the most important environmental concerns worldwide. The ever-
increasing levels of carbon dioxide (CO2) and other greenhouse gases in the
atmosphere are considered to be some of the world’s greatest environmental threats.
Among the greenhouse gases, CO2 plays a powerful role in enhancing the
greenhouse effect and is responsible for greater than 60 % of this effect (Acaravci
and Ozturk 2010). Consequently, CO2 should be closely examined by policymakers.
Sustainably managing the natural environment is one of the most important issues
for humanity, considering that future generations will have to rely on it for their
sustenance and wellbeing. Thus, it is our responsibility to protect the natural
environment for them.
Energy is essential for all forms of economic activity. The increasing
development and use of energy consuming technologies, resulting in increasing
energy consumption per capita, have characterized industrialization and economic
development processes over the past century (Warr et al. 2009). Thus, it is believed
that a country with a high energy consumption is also likely to have high living
standards. In addition, high energy consumption results in increased CO2 emissions,
which adversely affects the environment. As a result of this documented linkage,
academics and practitioners have intensively examined the effects of global
warming and climate change on the world economy (Alkhathlan and Javid 2013).
According to the first Human Development Report (HDR) published by the
United Nations Development Programme (UNDP) in 1990, ‘‘People are the real
wealth of a nation. The basic objective of development is to create an enabling
environment for people to enjoy long, healthy, and creative lives. This may appear
to be a simple truth. But it is often forgotten in the immediate concern with the
accumulation of commodities and financial wealth.’’ Indeed, economic growth is an
important factor in reducing poverty and generating the resources necessary for
human wellbeing and environmental protection, but it does not solely guarantee an
increase in living standards. It fails to justify the important factors of societal
wellbeing that are not directly linked to economic production such as life
expectancy, health, and education (Ouedraogo 2013, p. 29). Therefore, focus has
been placed on human development indices in recent years. Few studies have
focused on human development indices (e.g., Niu et al. 2013, Martinez and
Ebenhack 2008, Steinberger and Roberts 2010). Due to a lack in this area, this study
investigates the linkage between human development index (HDI) and CO2
emissions within a panel framework. Most studies in the literature use gross
domestic product (GDP) as a proxy for growth (e.g., Kraft and Kraft 1978, Lee
2005, Mehrara 2007, Acaravci and Ozturk 2010); however, this study uses HDI as a
proxy for growth so that wellbeing, rather than only monetary wealth, is considered.
This results from HDI, including more comprehensive information using health and

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education data as well as per capita income data (UNDP, HDR 2014). Conversely,
we use per capita CO2 emissions resulting from the use of total final energy as a
proxy for environmental harm. As mentioned above, CO2 emissions are the largest
component of greenhouse gas emissions and the greenhouse effect. As such, it is
used herein to represent the degradation of the environment. According to
Steinberger and Roberts (2010), developed nations use and emit far more energy
and CO2 per capita than they need to maintain their high living standards. Therefore,
they argue that truly sustainable social and environmental progress is only possible
if industrialized nations substantially reduce their consumption and emissions. Most
of the Organization for Economic Co-operation and Development (OECD) member
countries have high incomes according to World Bank classifications. Therefore, we
are interested in the OECD members in that study. Moreover, economically, OECD
countries are highly intertwined with each other. Hence, this study employs the
method proposed by Konya (2006) and considers both cross-sectional dependence
and issues of heterogeneity.
The remainder of the paper is organized as follows. Section 2 summarizes the
hypotheses and discusses the empirical literature. Then, Sect. 3 discusses the data
and methodology used in this study. Finally, Sect. 4 presents the conclusion and
policy implications.

2 Hypothesis and literature

Investigating the relation between economic growth and CO2 emissions is currently
a prominent topic in the literature. Studies on this topic can be divided into three
groups. The first group comprises studies investigating the validity of the
Environmental Kuznets Curve (EKC) Hypothesis. According to this hypothesis,
until per capita income reaches some level, environmental pollution will increase as
income increases. However, after some level of per capita income is achieved, the
increasing trend of the environmental pollution will reverse and environmental
pollution will decrease even as per capita income increases. Therefore, the relation
between environmental degradation and per capita income is represented by an
inverted U-shaped curve called the EKC (Cil Yavuz 2014). Alkhathlan and Javid
(2013) examined the existence of an inverted U-shaped EKC for Saudi Arabia,
Saboori and Sulaiman (2013) examined the case for Malaysia, Cil Yavuz (2014) for
Turkey, Ozcan (2013) for 12 Middle East countries, and Soytas et al. (2007) for the
U.S. This study in the U.S. differed from the other studies by also including energy
consumption, labor, and investment in capital to their analysis.
The second group focuses on the relation between energy consumption and
economic growth. With respect to the results, the relation between energy
consumption and economic growth has been synthesized into four testable hypothe-
ses (Apergis and Payne 2009). The first of these is known as the growth hypothesis
and asserts that an increase in energy consumption increases real GDP. In this case,
implementing energy conservation policies lessens growth performance. The
growth hypothesis is valid if a unidirectional causality runs from energy
consumption to economic growth. The second hypothesis is again related to

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unidirectional causality, but the direction of causality runs in the opposite direction
from economic growth to energy consumption. This is called the conservation
hypothesis in which increasing economic growth increases energy consumption. In
such a case, applying conservation policies will have little or no adverse effects on
economic growth. If the causality between energy consumption and economic
growth is bidirectional—known as the feedback hypothesis—both economic growth
and energy consumption impact each other. Finally, the neutrality hypothesis is
substantiated by the nonexistence of a causal relation between energy consumption
and economic growth. No consensus seems to exist in the literature regarding the
strength of one hypothesis versus that of the others. Kraft and Kraft (1978)
introduced pioneering studies related to possible causal linkages between energy
consumption and economic growth (Cowan et al. 2014). Their study supports the
conservation hypothesis, wherein a unidirectional causality exists such that
increasing gross national product increases energy consumption, for the U.S.
during 1947–1974. Lee (2005) examined the relation between energy consumption
and GDP for 18 developing countries and found a unidirectional causality wherein
increasing energy consumption increases GDP growth, supporting the growth
hypothesis. Mehrara (2007) explored evidence for the conservation hypothesis that
an increasing GDP increases energy consumption, with no feedback effect, for 11
oil-exporting countries. Apergis and Payne (2009) considered the role of capital and
labor in the growth process and examined the causal relation between energy
consumption and economic growth for 11 Commonwealth of Independent States.
They found evidence that the feedback hypothesis has much explanatory power in
the long run and suggests a bidirectional causality between the variables. Narayan
and Smyth (2009) reached feedback effects. Wolde-Rufael (2009) re-examined the
causal relation for 17 African countries and obtained mixed results. Acaravci and
Ozturk (2010) found no relation between per capita electricity consumption and per
capita real GDP for 15 transition countries. This suggests some validity to the
neutrality hypothesis. Kim et al. (2010), differing from the other studies, employed
nonlinear Granger causality tests to explore the relation between CO2 emissions and
economic growth for Korea. Their findings showed evidence for two-way causality
between CO2 emissions and economic growth. This would indicate that a reduction
in CO2 can inversely impact the economy. Apergis and Payne (2011) included
measures of capital and labor to their investigation of a causal relation between
electricity consumption and economic growth for 88 countries. They classified the
countries into four groups according to their income levels. Their findings support
the feedback hypothesis for high-income, upper-middle-income, and lower-middle-
income countries. For low-income countries, the findings of the study support the
growth hypothesis. Similarly, Shahbaz and Lean (2012) reported a feedback effect
for Pakistan. Within this group, some rare studies investigated the relation between
economic growth and CO2 production using HDI as a proxy for wellbeing as it
includes more comprehensive information regarding countries. Ouedraogo (2013)
found a neutrality effect for the relation between energy consumption and HDI in
the short run and found unidirectional Granger causality suggesting that increased
energy consumption lead to increased scores on the HDI in the long run. Niu et al.
(2013) used panel data for 50 countries to investigate the causal relation between

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electricity consumption and five indicators of human development (e.g., per-capita

GDP, consumption expenditure, urbanization rate, life expectancy at birth, and the
adult literacy rate). They found that the higher the income of a country, the greater is
its electricity consumption and the higher are its living standards. Martinez and
Ebenhack (2008) found a strong relation between HDI values and energy
consumption for the majority of the world, including 120 nations, using saturation
curves. Steinberger and Roberts (2010) indicated that high human development can
be achieved at moderate energy and CO2 emission levels.
The last group comprises a combination of the first two groups that investigate
the dynamic relation between energy consumption, economic growth, and
environmental pollutants. Soytas and Sari (2009) examined the long-run relation
between economic growth, CO2 emissions, and energy consumption in Turkey.
Apergis and Payne (2010) found evidence for an inverted U-shaped EKC and for the
feedback hypothesis. Niu et al. (2011) compared four developed Asia–Pacific
countries with four developing Asia–Pacific countries with respect to the causal
relation between energy consumption, GDP growth, and carbon emissions. Wang
et al. (2011) investigated the relation between CO2 emissions, energy consumption,
and real economic output for 28 provinces in China. Alam et al. (2012) employed
tests for the possible existence of a causal relation between energy consumption,
electricity consumption, carbon emissions, and economic growth for Bangladesh.
Dritsaki and Dritsaki (2014) used panel co-integration and causality tests to
investigate the relation between energy consumption, economic growth, and CO2
emissions for Greece, Spain, and Portugal.

3 Methods and findings

3.1 Data

The variables used in this study include per capita CO2 emissions from the
consumption of energy, measured in millions of metric tons per capita, and the HDI
over the annual period 1992–2011 for 33 OECD member countries. These 33 OECD
member countries are categorized into two groups according to their GDPs for the
year 2013, and the data is taken from the World Bank. The first group (Panel A)
comprises 17 countries with GDPs of over $500 billion, including the U.S,
Switzerland, Sweden, Norway, Netherlands, Korea, Japan, Canada, Australia,
Belgium, France, Italy, Spain, UK, Poland, Mexico, and Turkey. The second group
(Panel B) comprises 16 countries with GDPs of under $500 billion, including New
Zealand, Ireland, Iceland, Denmark, Austria, Czech Republic, Finland, Greece,
Israel, Luxembourg, Slovenia, Chile, Estonia, Hungary, Portugal, and Slovakia.
Because of the unavailability of data, Germany is not included in the study. HDI
data are sourced from the UNDP, and CO2 emissions are taken from the U.S.
Energy Information Administration.

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3.2 Preliminary analysis

Granger causality means that knowledge of past values of one variable (X) helps to
improve the forecasts of another variable (Y). Three approaches have been used for
examining the direction of causality from panel data. The first approach is a
generalized method of moments estimator. This approach is unable to consider
either the cross-sectional dependence or the heterogeneity of the data (Pesaran et al.
1999). The second approach proposed by Hurlin (2008) controls for the
heterogeneity but not for the cross-sectional dependency. The last approach
proposed by Kónya (2006) is able to consider both the cross-sectional dependency
and the heterogeneity of data (Kar et al. 2011).
Before considering panel data causality, cross-sectional dependency and slope
heterogeneity should be controlled to determine the appropriate technique.
According to Zellner (1962), if cross-sectional dependency exists, it will be more
efficient to use the seemingly unrelated regression (SUR) approach than the
ordinary least squares (OLS) approach when estimating panel data causality. In
addition, Pesaran (2006) stated that substantial biases and size distortions will occur
when cross-sectional dependency exists and is ignored.
Breusch and Pagan’s (1980) Lagrange Multiplier (CDLM hereafter) test and
Pesaran (2004) CD tests have been used in empirical studies to test for cross-
sectional dependency. The CDLM test is based on the following LM statistic:
N1 X
X N
CDLM ¼ T q^2ij
i¼1 j¼iþ1

where q^2ij denotes the sample estimate of the pairwise correlation of the residuals
obtained from individual OLS estimations.  Under  the null hypothesis of no cross-
section dependence, specified by Cov uit ; ujt ¼ 0; for all t; i 6¼ j, CDLM is
asymptotically distributed as Chi squared with N (N - 1)/2 degrees of freedom.
Pesaran (2004) stated that the CDLM test is only valid when N is relatively small and
T is sufficiently large. To overcome this problem, Pesaran (2004) proposed the
following LM statistic for the cross-section dependency test (the so-called CD test):
vffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
u
u 1 X
N1 X N
CD ¼ t ðTq^2ij  1Þ
NðN  1Þ i¼1 j¼iþ1

Under the null hypothesis of no cross-sectional dependence with the first T !

1 and then N ! 1; this test statistic is asymptotically distributed as standard
normal (Kar et al. 2011).
The second issue in a panel data analysis is to decide whether the slope
coefficients are homogenous. If we assume the homogeneity of the panel without
testing it, then we fail to notice country-specific characteristics. Pesaran and
Yamagata (2008) developed the following standardized dispersion statistic for
testing homogeneity:

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pffiffiffiffi N 1 S~  k
~¼
D N pffiffiffiffiffi
2k

Under the null hypothesis with the condition of (N, T) ? ? and when the error
terms are normally distributed, the D ~ test has an asymptotic standard normal
distribution. In the small samples, the D~ test can be improved using the following
adjusted version:
!
pffiffiffiffi N 1 S~  EðZ~iT Þ
~adj ¼ N
D pffiffiffiffiffiffiffiffiffiffi
VarðZ~iT Þ

where E ð~ ziT Þ ¼ k; var ð~ziT Þ ¼ 2k ðTk1 Þ

ðTþ1Þ (Hsueh et al., 2013).
Tests for cross-sectional dependency and homogeneity are presented in Table 1.
Clearly, the null hypotheses of no cross-sectional dependency and slope
homogeneity across the countries are strongly rejected at the conventional levels
of 1, 5, or 10 % significance. This finding implies that a shock occurring in one of
these OECD countries seems to be transmitted to other countries. Furthermore, the
rejection of slope homogeneity implies that the panel causality analysis caused by
imposing a homogeneity restriction on the variable of interest results in misleading
inferences.

Table 1 Cross-sectional dependency and homogeneity tests

Test Panel A Panel B

lnCO2 lnHDI lnCO2 lnHDI

Statistics p value Statistics p value Statistics p value Statistics p value

Cross-sectional dependency tests

Intercept
CDLM 219.517 0.000 790.698 0.000 193.487 0.000 520.628 0.000
CD -2.218 0.013 -2.329 0.010 -2.407 0.008 -1.303 0.096
Intercept and trend
CDLM 267.411 0.000 568.127 0.000 244.198 0.000 343.562 0.000
CD -2.470 0.007 -2.139 0.016 -1.479 0.070 -1.527 0.063

Test Panel A Panel B

Statistics p value Statistics p value

Homogeneity test
D~ 17.762 0.000 13.715 0.000
D~adj 19.185 0.000 14.814 0.000

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3.3 Panel granger causality analysis

Having cross-sectional dependency and heterogeneity across countries, we need to

apply a causality method that is able to capture these features. In this regard, the
panel causality approach proposed by Konya (2006) seems to be appropriate.
Konya (2006) suggests a different panel causality test based on the SUR
estimator proposed by Zellner (1962) and the Wald test with country-specific
bootstrap critical values. This test does not require pretesting for unit roots and
cointegration apart from the lag structure. The panel causality approach of Kónya
(2006) can be formulated as follows:
P1
mly P1
mlx
y1;t ¼ a1;1 þ b1;1;l y1;tl þ c1;1;l x1;tl þ e1;1;t
l¼1 l¼1
P1
mly P1
mlx
y2;t ¼ a1;2 þ b1;2;l y2;tl þ c1;2;l x2;tl þ e1;2;t
l¼1 l¼1
..
.
P1
mly P1
mlx
yN;t ¼ a1;N þ b1;N;l yN;tl þ c1;N;l xN;tl þ e1;N;t
l¼1 l¼1

and

P2
mly P2
mlx
x1;t ¼ a2;1 þ b2;1;l y1;tl þ c2;1;l x1;tl þ e2;1;t
l¼1 l¼1
P2
mly P2
mlx
x2;t ¼ a2;2 þ b2;2;l y2;tl þ c2;2;l x2;tl þ e2;2;t
l¼1 l¼1
..
.
P2
mly P2
mlx
xN;t ¼ a2;N þ b2;N;l yN;tl þ c2;N;l xN;tl þ e2;N;t
l¼1 l¼1

where x denotes the CO2 emissions, and y denotes HDI, N is the number of panel
(j = 1, …, N), t is the time period (t = 1, … ,T), and l is the lag length.
In this system, each equation has different predetermined variables, and the error
terms are assumed to be cross-sectionally dependent (Nazlioglu et al. 2011). To test
for Granger causality, alternative causal relations, which should be investigated, are
likely to be found for country j including that (1) there is one-way Granger causality
from X to Y if not all c1;i ’s are zero but all b2;i ’s are zero, (2) there is a one-way
Granger causality from Y to X if all c1;i ’s are zero but not all b2;i ’s are zero, (3) there
is a two-way Granger causality between X and Y if neither c1;i ’s nor b2;i ’s are zero,
and (4) there is no Granger causality between X and Y if all c1;i and b2;i ’s are zero.
Prior to estimation, we have to specify the number of lags. This is a crucial step
because the causality test results may critically depend on the lag structure. In
general, both too few and too many lags may cause problems. Too few lags mean
that some important variables are omitted from the model and this specification
error will usually cause bias in the retained regression coefficients, leading to
incorrect conclusions. Conversely, too many lags waste observations, and this

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 Table 2 Results for panel causality on Panel A
Countries lnCO2 does not Granger cause lnHDI lnHDI does not Granger cause lnCO2

Wald statistics Bootstrap critical value (%) Wald statistics Bootstrap critical value

10 5 1 10 5 1

Australia 0.388 104.486 200.223 200.223 8.927 63.327 157.082 157.082

Belgium 92.491 114.599 257.525 257.525 3.580 66.803 73.388 73.388
Canada 9.792 60.716 60.856 60.856 0.172 34.085 40.652 40.652
Eurasian Econ Rev (2016) 6:97–110

France 2.556 65.624 141.549 141.549 36.852* 30.825 58.428 58.428

İtaly 1294.967*** 58.297 59.103 59.103 5.056 144.813 188.774 188.774
Japan 354.535*** 239.059 244.775 244.775 2.18E-02 23.883 33.649 33.649
Korea Rep. 150.819* 24.120 362.533 362.533 13.642 51.504 67.998 67.998
Mexico 9.161 212.687 760.615 760.615 37.776*** 9.681 12.609 12.609
Netherlands 8.145 148.658 9331.119 9331.119 6.425 120.146 177.496 177.496
Norway 1300.166*** 172.402 431.262 431.262 85.512*** 23.533 48.441 48.441
Poland 1973.209*** 119.154 188.645 188.645 4.857 14.969 93.007 93.007
Spain 794.083*** 59.738 82.145 82.145 0.414 60.892 152.685 152.685
Sweden 33.568 238.189 430.691 430.691 0.430 20.597 27.731 27.731
Switzerland 2951.926*** 56.953 169.042 169.042 22.618*** 7.872 11.671 11.671
Turkey 748.199*** 98.157 102.556 102.556 14.737 38.346 39.411 39.411
UK 12.080 110.166 154.804 154.804 0.414 73.266 80.106 80.106
US 237.292*** 16.490 30.154 30.154 12.887 89.784 198.074 198.074

Bootstrap critical values are obtained from 10.000 replications

***, **, * indicate significance at the 0.01, 0.05, 0.1 levels, respectively
105

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Table 3 Results for panel causality on Panel B

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Countries lnCO2 does not Granger cause lnHDI lnHDI does not Granger cause lnCO2

Wald statistics Bootstrap critical value (%) Wald statistics Bootstrap critical value (%)

10 5 1 10 5 1

Austria 0.957 227.927 252.320 252.3209 6.683 71.161 573.723 573.723

Chili 1.479 78.671 657.389 657.389 199.310* 77.287 1062.059 1062.059
Czech Rep. 28.752 339.383 1049.363 1049.363 160.362*** 38.536 54.570 54.570
Denmark 168.203*** 10.349 19.374 19.374 8.749 339.325 907.28 907.286
Estonia 6.520 14.530 23.663 23.663 88.268* 34.123 1070.101 1070.101
Finland 0.966 22.027 35.797 35.797 276.283*** 88.111 214.003 214.003
Greece 0.209 22.136 22.609 22.609 3776.54* 265.023 1093.135 1093.135
Hungary 31.587 122.483 650.128 650.128 0.356 52.157 105.126 105.126
Iceland 18.813*** 16.255 16.738 16.738 163.700*** 69.828 82.635 82.635
Ireland 43.537* 45.193 79.081 79.081 18.481 402.578 404.199 404.199
Israel 19.018* 8.431 33.566 33.566 0.201 30.866 52.224 52.224
Luxemburg 36.574* 34.626 42.162 42.162 19.320 757.424 929.179 929.179
New Zealand 1.560631 27.159 53.500 53.500 123.215* 41.617 149.63 149.63
Portugal 14.69607* 13.586 55.564 55.564 190.597* 81.358 209.713 209.713
Slovakia 121.0247*** 62.732 63.272 63.272 1.267 369.171 773.224 773.224
Slovenia 4.90428 71.751 90.867 90.867 25.063 231.154 246.525 246.525

Bootstrap critical values are obtained from 10.000 replications

***, **, * indicate significance at the 0.01, 0.05, 0.1 levels, respectively
Eurasian Econ Rev (2016) 6:97–110
Eurasian Econ Rev (2016) 6:97–110 107

specification error will usually increase the standard errors of the estimated
coefficients, making the results less reliable (Konya 2005).
We follow Konya’s approach wherein maximal lags are allowed to vary across
variables but remain the same across equations to determine the optimal lag
structure. We estimate the system for each possible pair of ly1, lx1, ly2, and lx2 by
assuming from one to four lags, and then choose the combinations which minimize
the Schwartz Bayesian Criterion.
Konya test results are indicated in Table 2 for Panel A. Granger causality from
CO2 to HDI exists for seven countries in Panel A (Italy, Japan, Korea, Poland,
Spain, Turkey, and the U.S.). Granger causality from HDI to CO2 exists for France
and Mexico, bidirectional Granger causality exists between HDI and CO2 for
Norway and Switzerland, and no causality exists for the others.
Konya test results are indicated in Table 3 for Panel B. Granger causality from
CO2 to HDI exists for five countries in Panel B (Denmark, Ireland, Israel,
Luxemburg, and Slovakia). Granger causality from HDI to CO2 exists for six
countries (Chile, Czech Republic, Estonia, Finland, Greece, and New Zealand) and
bidirectional Granger causality exists between HDI and CO2 for Iceland and
Portugal, and no causality exists for the others.

4 Conclusions

This study uses panel causality analysis to examine the causal link between HDI and
CO2 emissions in OECD countries for 1992–2011, which considers dependency and
heterogeneity across countries. This study considers country-specific characteristics
to explain the causal link between HDI and CO2 emissions. As we mentioned in the
literature review, many studies have investigated the energy–growth nexus, but no
consensus exists in the literature. The differences between the results in these
studies can be attributed to differing time periods, methodology, and variables used.
The results of this study support the growth hypothesis for Denmark, Ireland,
Israel, Italy, Japan, Korea, Luxemburg, Poland, Spain, Slovakia, Turkey, and the
U.S. Under this hypothesis, energy conservation policies may negatively impact
HDI. Evidence for the conservation hypothesis is found in eight countries including
Chile, Czech Republic, Estonia, Finland, France, Greece, Mexico, and New
Zealand. In this situation, conservation policies can be applied with little or no
negative effects on HDI. The results also support the feedback hypothesis for
Iceland, Norway, Portugal, and Switzerland. This means that an increase in CO2
emissions directly affects HDI, and HDI also stimulates further CO2 emissions in
these countries. Finally, no causality exists between CO2 and HDI in Australia,
Austria, Belgium, Canada, Hungary, Netherlands, Slovenia, Sweden, and the UK
supporting the neutrality hypothesis. This means that energy consumption policies,
whether expansive or conservative, will not impact HDI.
The growth hypothesis is dominant for our sample. This denotes that any
conservation policies related to energy consumption can diminish CO2 emissions;
however, they will simultaneously impede economic growth as well as HDI.
Conversely, if the conservative policies are not implemented, then the detrimental

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effect of declining environmental quality in the country could affect human health,
agricultural productivity, water resources, and ultimately economic growth.
Therefore, policymakers must develop strategic plans to reduce CO2 emissions to
protect the environment for future generations. Consequently, appropriate policies
associated with the efficient use of energy resources and the use of renewable
resources is necessary for both human wellbeing and a sustainable environment. The
Kyoto Protocol seems to be a good tool for that in theory, but it is not functioning as
effectively as it was planned. Countries should ratify this protocol and should
implement the required restrictions on CO2 emissions for the benefit of the
environment and world.
According to Ouedraogo (2013, p 28), ‘‘developed countries are now beginning
to decouple their energy consumption from economic growth. There remains a
strong direct relationship between energy consumption and economic development
in developing countries.’’ In contrast to the results of this study, our results reveal
that the development of the OECD member countries depends on energy. This is
particularly true in the relatively high-income countries within this group (Panel A)
where the effect of CO2 on HDI is greater. Moreover, they also have relatively high
CO2 emissions. In addition, OECD countries have approximately 86 % of the
world’s installed nuclear capacity, and most part of it (91 %) is involved in
countries that are included in Panel A (Nuclear Energy Agency). This information
indicates that if we consider the nuclear energy used by these countries, the
difference in CO2 emissions and energy use between relatively high-income and
low-income countries will be greater than it appears. In conclusion, countries with
relatively high incomes among OECD members should take on more responsibility
to reduce their emissions and to protect the environment. Countries should be aware
of the need to promote a sustainable environment while trying to achieve high
development rates. In addition, to facilitate further research, HDI should be
improved to consider the need to promote a clean environment for future
generations.

Acknowledgments We are grateful to anonymous reviewers for their constructive and valuable
comments that helped us to improve the paper. We also would like to thank Laszló Kónya and Şaban
Nazlıoğlu for providing us with TSP codes.

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