Analysis of the relationship between selected Macroeconomic variables and carbon Emission in Kenya

Abstract

Climate change and carbon dioxide (CO 2 ) emissions are significant threats to the agricultural sector in Kenya. While the sector is critical to the country's economy, its high demand for agricultural inputs such as fertilizers is contributing to the problem of CO 2 emissions. To address this challenge, it is necessary to understand the nexus between CO 2 emissions and macroeconomic variables. Therefore, this study aimed to analyze the relationships between selected macroeconomic variables and CO 2 emissions in Kenya using the Environmental Kuznets Curve hypothesis as a guiding theory. The study adopted a time series research design, and secondary data from the World Bank Database, Kenya National Bureau of Statistics, and the Environmental Performance Index covering the period from 1983 to 2019 were utilized. To test for unit root factors, the Augmented Dickey-Fuller Test, Phillips-Perron, and Zivot- Andrews tests were employed. The Vector Error Correction Model and Johansen Co- integration analysis were applied to estimate long- and short-run relationships between the study variables. The results showed that during the short run, only Foreign Direct Investment had a statistically significant relationship with CO 2 emissions (z = -6.55, p < 0.05). However, during the long run, all the macroeconomic variables had a statistically significant relationship with CO 2 emissions at p < 0.05. Specifically, the study found an indirect and statistically significant relationship between agricultural output and CO 2 emissions in Kenya during the long run (z = -3.65, p < 0.01). Moreover, Foreign Direct Investment and CO 2 emissions exhibited a direct and statistically significant relationship during the long run (z = 10.61, p < 0.01), while trade openness and CO 2 emissions had an indirect relationship (z = -3.41, p < 0.01). Additionally, inflation and CO 2 emissions had an indirect relationship in Kenya (z = -3.12, p < 0.01). The study concludes that sustainable agricultural practices should be adopted in Kenya to minimize CO 2 emissions in the short run. Additionally, Foreign Direct Investment should be geared towards investing in more efficient agricultural technologies to reduce CO 2 emissions. The findings suggest that policymakers should consider more education and awareness on sustainable agricultural practices that will minimize Carbon dioxide emission even during the short run in Kenya. Additionally, Foreign Direct Investment should be geared towards more efficient technology in agriculture to reduce Carbon dioxide emission in Kenya. Overall, this study contributes to the literature on the relationships between macroeconomic variables and CO 2 emissions in Kenya. The study has some limitations, such as data limitations and potential sources of bias. Nonetheless, the study provides important insights into the links between macroeconomic variables and CO 2 emissions, which can inform policymaking aimed at promoting sustainable development in Kenya.