CO2 emissions and income trajectory in Australia: the role of multifactor productivity

Abstract

This study investigates the relationship between carbon emissions and income in Australia, while controlling for multifactor productivity and export of black coal. Although technological progress seems to play a critical role in achieving long term goals of carbon reduction and economic growth, empirical studies in this line of research often include linear or non-linear time-trend as a crude measure of technological progress. The use of multifactor productivity as a measure of technological state, therefore, overcomes the limitations and provides practical policy directions. This study uses the Autoregressive Distributed Lag Model (ARDL), recently developed bound-testing approach and a reasonably large sample size to investigate the cointegration relationship. Empirical findings in the study show evidence of the existence of Environmental Kuznets Curve type relationship for carbon emissions in the Australian context. The technology as measured by multifactor productivity, however, is not found as an influencing variable in emissions-income trajectory.