The Impact of GDP Per Capita and Crime Rate on the C02 Emission

Abstract

The study aims to examine empirically the impact of GDP per capita as well as the crime rate on carbon emission. Because these variables are endogenously determined we use Panel VAR methodology. The study contributes to the literature by examining the nexus among the carbon emission, the crime rate and the GDP per capita. For the purpose of the study, we use data for 21 European countries over the period 1996-2014. Panel Granger causality tests indicate that there is a bi-directional causality between GDP per capita and homicide. Panel granger causality tests also indicate that there is a unidirectional causality from carbon emission to GDP, and from carbon emission to homicide rates. Moreover, according to forecast error variance decomposition results carbon emission explains 40 % of the variance of the GDP per capita. GDP per capita explains 60% of the variance of the GDP per capita. Additionally, a high portion of variances of homicide rate and carbon emission is explained by changes in these variables. According to impulse response functions; homicide rate decreases and carbon emission does not change if there is a one time, one standard deviation shock to GDP per capita. Impulse response function results indicate that GDP per capita decreases and carbon emission does not change if there is a one time, one standard deviation shock to homicide rates. Moreover, impulse response function results show that GDP per capita increases and homicide rate increases if there is a one time, one standard deviation shock to carbon emission. These results imply that GDP per capita increase would impact crime negatively along the development path through direct and indirect channels. Even though the findings showing that GDP per capita does not affect carbon emission conflict with some of the studies in the literature, the positive impact of carbon emission on the economic wellbeing can be explained by the view granted by the Pollution Haven Hypothesis.