Business Activity And Environmental Degradation In Mexico

Abstract

This paper contributes to the literature by investigating the relationships between business activity, carbon dioxide (CO₂) emissions, energy consumption in a developing country by taking into consideration the effects of ongoing industrialization and financial development. To do this, we introduce an innovative empirical approach based on ARDL bounds testing in the presence of structural breaks and apply it to Mexico over the period 1971-2011. We show strong evidence of cointegration between these variables. More interestingly, we find that energy is the long-run forcing variable to explain the Mexican business activity growth. This implies that energy savings policy may result in decreasing the national income or employment.