Stochastic convergence in per capita CO$_2$ emissions. An approach from nonlinear stationarity analysis

Abstract: This paper studies stochastic convergence of per capita CO$_2$ emissions in 28 OECD countries for the 1901-2009 period. The analysis is carried out at two aggregation levels, first for the whole set of countries (joint analysis) and then separately for developed and developing states (group analysis). A powerful time series methodology, adapted to a nonlinear framework that allows for quadratic trends with possibly smooth transitions between regimes, is applied. This approach provides more robust conclusions in convergence path analysis, enabling (a) robust detection of the presence, and if so, the number of changes in the level and/or slope of the trend of the series, (b) inferences on stationarity of relative per capita CO$_2$ emissions, conditionally on the presence of breaks and smooth transitions between regimes, and (c) estimation of change locations in the convergence paths. Finally, as stochastic convergence is attained when both stationarity around a trend and $\beta$-convergence hold, the linear approach proposed by Tomljanovich and Vogelsang (2002) is extended in order to allow for more general quadratic models. Overall, joint analysis finds some evidence of stochastic convergence in per capita CO$_2$ emissions. Some dispersion in terms of $\beta$-convergence is detected by group analysis, particularly among developed countries. This is in accordance with per capita GDP not being the sole determinant of convergence in emissions, with factors like search for more efficient technologies, fossil fuel substitution, innovation, and possibly outsources of industries, also having a crucial role.