CO2 emissions, industrial output, and economic growth nexus: Evidence from Nepalese economy

Abstract

This study aims to investigate the relationship between Nepal’s industrial sector output, economic expansion, and CO2 emissions. The analysis uses secondary data from various World Bank reports and covers the period from 1990 to 2022. It is founded on an exploratory and analytical research design. The relationship and effect of Nepal’s GDP and manufacturing output on CO2 emissions are investigated using various statistical and econometric tools, including descriptive statistics, Pearson correlation analysis, unit root testing, Granger causality test, Johansen co-integration test, and autoregressive regression model. The results show that the production of the industrial sector and CO2 emissions are highly positively correlated, as is GDP. The GDP granger causes CO2 emissions, but manufacturing output does not. Johansen’s co-integration test shows a long-term relationship between predictor and response variables. The previous value of CO2 emission is also responsible for the present level of carbon emissions: a one percent increase in GDP leads to a 0.314 percent increase in CO2 emissions in Nepal. The impact of industrial sector output is statistically insignificant. The condition of GDP and CO2 emissions shows the initial phase of the environmental Kuznets curve (EKC). The study recommends adopting an environment-friendly production technique to overcome the problem of carbon emissions in Nepal.