Export, Import, Economic Growth, and Carbon Emissions in Bangladesh: A Granger Causality Test under VAR (Restricted) Environment

Purpose: This paper examines the causal and cointegrating relationship between economic growth and CO2 emissions in a multivariate framework by including imports and exports as others control variables for an emerging economy like Bangladesh. Design/methodology: The paper applied vector error correction model (VECM) Granger casualty test for assessing the direction of causality and variance decomposition to explain the magnitude of the forecast error variance determined by the shocks to each of the explanatory variables over time. LB (Q-stat) test is to determine data properties and WILD test is to assess short run causality from independent variables to dependent variable. Findings: The study results revealed that variables are integrated in the same order. The results of Johansen Juselius cointegration tests indicate that there is a unique long-term or equilibrium relationship among variables. Again, Granger causality test revealed that short run unidirectional causality are running from carbon dioxide emission to exports, GDP to import, and from import to carbon dioxide emissions. Variance decomposition function shows that the positive shocks in error term will produce positive effects on all variables in the long run. Therefore, a concerted effort from all national and international stakeholders, i.e., enterprises, consumers, and governments are expected to take measures to offset carbon emission and pursue environment-friendly trade plan for better managing the cities and regions in order to fight against global warming and climate change risk.