Causality Analyisis Between Economic Growth And Climate Change: Case Of Republic Of North Macedonia
Abstract
Climate change is any change in climate which is attributed directly or indirectly to human
activity and that alters the composition of the global atmosphere. Climate change is caused by
the increment of greenhouse gases in the atmosphere through the burning of fossil fuels and
land use. This causes increased radiation of infrared rays back to the earth hence temperature
increases through the greenhouse gas effect. Human GHG emissions are the dominant cause of
climate change since the industrial age. Since the Industrial Revolution, economic growth has
generally been tied to increasing greenhouse gas emissions. A switch from fossil fuel-based to
low-carbon energy sources can help sustain the same or even higher levels of production while
reducing emissions, thereby enabling the decoupling of growth from emissions. Economic
growth is typically measured as the rate of change in output, or, more specifically, in real gross
domestic product. Real GDP is a measure of the market value of all final goods and services
produced in the economy for a given year, adjusted for inflation, and is used as an indicator of
material living standards in a given country. The main purpose of this paper is to determine,
describe and analyze the causality between economic growth and climate change in Republic
of North Macedonia. In order to examine the relationship between economic growth and climate
change in Republic of North Macedonia, ARDL technique as well as Granger Causality analysis
has been applied, covering annual data for the time period 1991-2020. Moreover, the results
imply the climate change as a statistically proven factor to substantially influence the economy
in the Republic of North Macedonia in the long run period. If low-carbon energy becomes
significantly cheaper than fossil fuels, the emissions intensity of GDP could be lowered to the
degree required for absolute decoupling of emissions from economic output. Human actions,
primarily burning fossil fuels but also deforestation and other activities, have resulted in a rapid
increase in the concentration of greenhouse gases in the atmosphere, including carbon dioxide,
methane, and nitrous oxide, trap heat close to the surface and cause global temperatures to rise.
The result has been a global temperature increase of approximately 0.2°C per decade; today,
mean surface temperatures are approximately 1.0°C warmer than the pre-industrial period.
Republic of North Macedonia as a developing country has adopted several policies and
strategies to be implemented, taking into consideration the evident role of climate change as a
potential damaging factor, thus in this study we emphasize the climate change as an integral
element to be taken into consideration during planning, designing and implementing
development activities, suggesting these empirical findings as further consideration for the
government of the Republic of North Macedonia.
Keywords: Economic growth, climate changes, developing economies, Granger causality, CO2
JEL Classification: Q1, O44, Q5, Q54
Authors: Imërlije Alili, Afrim Alili
