Carbon Emissions and Baltic Dry Index; A Different Approach for Environmental Kuznets Curve

Abstract

This study aims to quantify the economic activity – environmental degradation relationship by using Baltic Dry Index (BDI) and carbon emission as corresponding proxies. The implementation of different policy fiscal tools formats the specific economic environment which we expect to affect the volume of carbon emissions. The results of the survey may well provide us with information regarding the causalitybetween the value of BDI and the volume of carbon emissions. The methodology employed, in the present research, is the threshold vector error correction model. According to our findings, 2 thresholds were detected. In the long term and within the first regime as well as in the second regime when the BDI is the dependent variable, the error correction term is statistically significant (the system moves to the steady state), while the relationship of BDI and carbon emissions is of negative sign. The final regime is indicative of a steady state with the short term dynamics to be playing an important role. The results derived, notify us of the direction of the relationship between the two variables, a fact that is useful for environmental policies to be implemented in order to regulate the volume of carbon emissions, generated by a particular economic activity, for example some type of tax on highly polluting products.