Does globalization worsen environmental quality in developed economies?

We examine the causal relationship between globalization and CO2 emissions for 25 developed economies in Asia, North America, Western Europe and Oceania using both time series and panel data techniques, spanning the annual data period of 1970–2014. Because of the presence of cross-sectional dependence in the panel, we employ Pesaran’s (2007) cross-sectional augmented panel unit root (CIPS) test to ascertain unit root properties. The Westerlund (2007) cointegration test is also used to ascertain the presence of a long-run association between globalization and carbon emissions. The long-run heterogeneous panel elasticities are estimated using the Pesaran (2006) common correlated effects mean group (CCEMG) estimator and the Eberhardt and Teal (2010) augmented mean group (AMG) estimator. The causality between the variables is examined by employing the Dumitrescu and Hurlin (2012) and Emirmahmutoglu and Kose (2011) Granger causality tests. The empirical results reveal that globalization increases carbon emissions, and thus the globalization-driven carbon emissions hypothesis is valid. This empirical analysis suggests insightful policy guidelines for policy makers using ‘globalization’ as an economic tool for better long-run environmental policy