The Causal Dynamics among Output, Energy Demand and Carbon Emissions in Iran: a Threshold Analysis

This paper examines the causal dynamics among energy use, real GDP and CO2 emissions in the presence of regime shifts in Iran during 1347-1393 with using the Gregory and Hansen (1996a) threshold cointegration and the Toda and Yamamoto (1995) Granger causality techniques. A key aspect of this study is to investigate the influence of the Regime shift on the tri-variate relationship among these variables. Results confirm the presence of regime shift effects in the long run inter-linkages among energy use, real GDP and CO2 emissions in Iran thus, indicating that the structural changes have both economic and environmental effects. Also, the results of the causality test reveal existence of uni-directional causality from economic growth and energy use to carbon emissions and bidirectional causality between economic growth and energy consumption. Thus, energy-efficient technologies should be used in domestic production to mitigate carbon emissions. Hence, integration of energy and environmental policies into development plans is imperative towards attaining sustainable growth and development.