UNRAVELING THE NEXUS BETWEEN MACROECONOMIC FACTORS AND CARBON EMISSIONS IN DEVELOPING COUNTRIES: A VECM ANALYSIS MODELS

Abstract

Global efforts to reduce carbon emissions have become a major concern due to growing concerns over global warming and climate change. However, despite these efforts, carbon emissions continue to rise, particularly in developing countries that often prioritize economic growth over environmental sustainability. This study aims to analyze the causal relationship between carbon emissions, interest rates, political stability, trade openness, and foreign direct investment in eight developing countries. A quantitative approach, using regression analysis, is used to examine panel data collected from official sources over the period 2013–2022. The econometric model, the Vector Error Correction Model (VECM), is applied to identify causal relationships and reveal the long-term and short-term effects between the variables analyzed. The findings indicate that there is no relationship between all variables and carbon emissions. While the long-term test results show that exchange rates, political stability, trade openness, and foreign direct investment affect carbon emissions, while the short-term relationship as a whole has no short-term effect, this study emphasizes providing deeper insights into how macroeconomic policies and conditions can affect carbon emission reduction efforts in various countries. These findings play an important role in controlling carbon emissions and can encourage policymakers to integrate environmental considerations into economic policies.