COP21 Roadmap: Do innovation, financial development, and transportation infrastructure matter for environmental sustainability in China?

Abstract

The purpose of the present study is to explain the long-run and causal effects of innovation, financial development, and transportation infrastructure on CO₂ emissions using the combined cointegration and wavelet coherence approaches over the period from 1971 to 2018, while using economic growth as a control variable in the model. The outcomes of the Bayer-Hanck cointegration test show that there is an important cointegration equation among CO₂ emissions, innovation, financial development, transportation infrastructure, and real GDP. Moreover, the findings from a wavelet power spectrum reveal that there is a significant vulnerability in innovation, financial development, transportation infrastructure, and CO₂ emissions at different time frames and frequencies. Furthermore, the outcomes of wavelet coherence approach reveal that (i) Innovation is observed as a significant predictor of CO₂ emissions over the period from 2007 to 2013; (ii) In the long run, there are negative correlations between CO₂ emissions and financial development; (iii) Over the periods from 2000 to 2015, and from 1985 to 1989, transportation significantly causes CO₂ emissions. Our findings have substantial policy implications that suggest there is a need to strengthen innovation and transportation infrastructure to achieve environmental sustainability targets.

Keywords: CO(2) emissions; COP21; China; Financial development; Innovation; Transportation infrastructure.