Does ICT lessen CO₂ emissions for fast-emerging economies? An application of the heterogeneous panel estimations

This study examines the effects of electricity consumption, financial development, economic growth, trade and ICT on CO₂ emissions in the fast-emerging countries, excluding Russia due to the unavailability of data. Cross-sectional dependency was identified using the Pesaran (2004) and Breusch and Pagan CD tests from Breusch and Pagan (1980) using annual data from 1993 to 2014 based on data availability. The second-generation panel unit root test was applied to investigate the integration order of the series. The long-run relationship among the variables was confirmed using second-generation panel cointegration techniques, which take cross-sectional dependency into account. Additionally, this study utilized the FMOLS, DOLS and robust least square estimators to determine the long-run coefficients. The results suggested that electricity usage and financial development have a positive and significant impact, while economic growth and trade have a negative and significant impact on CO₂ emissions. Additionally, an inverted U-shaped relationship between ICT and CO₂ emission was confirmed. This implies that pollution declines after attaining a threshold point as the ICT usage increases. Furthermore, the Dumitrescu and Hurlin (2012) heterogeneous panel causality test suggested that there is a unidirectional causal relationship between electricity consumption and CO₂ emissions, CO₂ emissions and ICT, gross domestic product and CO₂ emissions. Another unidirectional causality exists between financial development and CO₂ emissions. The study suggests that renewable energy sources can be adopted to decrease carbon emissions and to promote clean energy. Financial development needs to be further strengthened to promote the use of eco-friendly ICT products.