CO2-Emissions and Economic Growth - A bounds-testing cointegration analysis for German industries

We model pollution as an input in the production process and test the long-run relationship between pollution and growth at the industry level. Most empirical studies, especially based on the environmental Kuznets curve, use highly aggregated data. Arguably, the results found may not be generalized for all industries in a given country. Using CO-2 emissions and GDP data for 47 industries observed over the period 1995-2010, we find a long-run relationship between pollution and growth only for a few German industries, e.g. the energy-generating-, the aviation- and agricultural industry. For these industries CO-2 emissions have a negative effect on growth, e.g. through environmental taxes and pollution allowances.