Stochastic convergence of per capita greenhouse gas emissions: New unit root tests with breaks and a factor structure

Abstract

This study examines the convergence of per capita greenhouse gas emissions for a global panel of 183 countries. Unlike previous studies that address the effects of structural breaks and cross-correlations separately, a new testing approach is proposed that jointly incorporates structural breaks and cross-correlations. Specifically, we extend the two break tests of Lee and Strazicich (2003) to allow for cross-correlations in a factor structure by adopting the PANIC procedure of Bai and Ng (2004). When accounting for structural breaks and factors, our results show that the evidence of stochastic convergence in greenhouse gas emissions is quite limited compared to other unit root tests that fail to account for cross-correlations. Policy implications of the findings are also discussed. © 2022 Elsevier B.V.