CO<inf>2</inf> emissions, energy consumption, financial development and economic growth: A multivariate cointegration and causality analysis for Greece

© IDOSI Publications, 2014. The current paper aims at investigating the relationship between CO 2 emissions, energy consumption, financial development and economic growth for Greece over the period 1960-2009. The stationary analysis is conducted by applying Clemente - Montanes - Reyes unit root test while for co-integration we apply the ARDL bounds testing approach developed by Pesaran - Shin - Smith. Our findings confirm the existence of three cointegrating vectors among the variables in the presence of structural breaks. The VECM causality analysis showed that both in the long and short run there is a unidirectional causal relationship between energy consumption and CO 2 emissions as well as between economic growth and energy consumption. Finally, we used forecast error variance decomposition (FEVD) in vector autoregressive (VAR) system using Choleski technique to test the strength of causal relationship between CO 2 emissions, energy consumption, economic growth and financial development. The findings of the study have significant policy implications for countries like Greece as it is acknowledged that the contribution of economic growth and financial development on CO 2 emissions is very small.