Exploring the Relationship between Industrial Economic Growth and Environmental Pollution - An Empirical Analysis Based on Cointegration and Granger Causality Test

Abstract

This paper aims at investigating the cointegration relationship between industrial economic growth and environmental pollutions from the timing dimension by using three types of environmental pollution indicators of industrial emissions and going further to test whether this relationship is bidirectional Granger causality. Firstly, the cointegration analysis’ result shows that the relationship between industrial economic growth and environmental quality may not meet the hypothesis of EKC curve. In the timing period analyzed, the relationship is linear and positive. Hence, promoting the relationship to be negative when only relying on self-regulation of the market will probably not be achieved. Secondly, based on cointegration test, this paper goes further to conduct Granger causality test of cointegration relationship. The result shows industrial economic growth causes pollution emission but it is not true vice versa. The reasons possibly include that that the technological progress in recent years may not embody on the reduction of pollution emission intensity, the absence of resources product market, the lack of tradable emission permits market and no effective incentives of green production behaviors of enterprises to react up on encouraging enterprises’ development. These generate external pressure to the transformation of industrial economic growth pattern.