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Since the beginning of human civilization in the Early Stone Age or Paleolithic Era, humans started transforming inputs collected from the nature into economic outputs, i.e. goods and services using their primitive technology. Once economic outputs being realized the important thing to satisfy human needs, they emphasized the transformation process, and later accelerated it adopting modern technology. The continuous effort towards achieving enormous volume of economic outputs resulted in Industrial Revolution in 1760. The Revolution started not only a new era of rapid economic growth but also attenuated the environmental quality, and more importantly it started transforming the global economy from organic economy based on labor power to inorganic economy based on fossil fuels (Kasman & Duman, 2015; Ahmed, et al, 2016 a). Burning fossil fuels release greenhouse gases (GHG) which scientific community undisputedly declared as the major cause of the global warming (Ahmed, et al, 2016 a). A recent study by NASA reveals that atmospheric carbon dioxide (CO2)- the major GHG has significantly increased since the Industrial Revolution (NASA, 2017).
Enhancing economic growth was the main purpose of all previous innovations regardless of their nature such as sophisticated machineries, new economic policies or financial development. Consequently, the global community has seen a substantial growth in its economic development over the last few decades (Al-Mulali, et al, 2015). Excessive economic growth requires transforming an enormous volume of raw materials and increases the use of energy generated mostly from fossil fuels (Ahmed, et al, 2016 a). Excessive use of both raw materials and energy causes environmental pollution on one hand and reduces natural resource base on other hand (idem). Subsequently, long term economic growth along with global warming and climate change becomes one of the major concerns that countries around the world are currently anticipating (Al-Mulali, et al, 2015; Ahmed, et al, 2016 a). The global concern over these issues has shifted the attention of researchers as well as policy makers from conventional economic development to sustainable development (Rehman, et al, 2012).
Better understanding about economy and environment is one of the preconditions to achieving sustainable development. Therefore, studying the relationship between economic growth and environment quality has become the focus of researches both in economics and environmental science over the latest decade (Sharma, 2011). Many researches on the issue have been carried out and the resulting wide range of literature is now available (Al-Mulali, et al, 2015; Kasman & Duman, 2015; Ahmed, et al, 2016 a). However, the findings are mostly inconclusive because of different indicators used for environmental quality, along with different econometric techniques and different control variables used in the studies (Rehman, et al, 2012; Ahmed, et al, 2016 a; Ahmed, et al, 2016 b). Most of the studies suffer from omitted variable bias, and being completed using information collected from either a single country or a small group of countries or a region (Halicioglu, 2009; Sharma, 2011; Farhani, et al, 2013; Al-Mulali, et al, 2015; Farhani & Ozturk, 2015). Consequently, it is difficult to generalize the results of a country or region for the rest of the world (Rehman, et al, 2012).
An inclusive global based research on the relationship including important variables is necessary for two reasons; it would reduce omitted variable bias and its findings would be appropriate at global level. Any research of this kind will assist policy makers working at global (e.g. IPCC) and regional level (e.g. EU). In our study, we become passionate to estimate the dynamic causal model for identifying the factors causing CO2 emissions in the long-run. The paper is organized as follows: after a survey of existing literature, the research methods are introduced followed by data analysis and a discussion, and a conclusion.
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