Examining the Relationship between Manufacturing Value Added and Environmental Impact in Azerbaijan

Abstract

This research investigates the relationship between manufacturing value added (MVA) as a proportion of GDP and CO2 emissions per capita in Azerbaijan from 1990 to 2020, a prominent energy-producing country facing the challenges of global climate change. Employing Johansen cointegration and Autoregressive Distributed Lag (ARDL) methodologies, the analysis demonstrates a significant long-term association between MVA and CO2 emissions, suggesting that variations in MVA are intricately linked to alterations in emissions levels. The Johansen cointegration test substantiates that CO2 emissions per capita and MVA exhibit a tendency to co-move over time, effectively rejecting the null hypothesis of no cointegration at the 5% significance level. Furthermore, the F-bounds test of the ARDL model provides compelling evidence of cointegration, with the F-statistic surpassing the upper critical bound across all significance levels. The results from the Error Correction Model (ECM) regression affirm the presence of a long-term adjustment mechanism, indicating that any deviations from the equilibrium relationship between CO2 emissions and MVA will be rectified over time. These outcomes underscore the vital nexus between economic activity and environmental sustainability in Azerbaijan, highlighting the imperative for cohesive policy frameworks aimed at addressing the environmental ramifications of rising manufacturing output while fostering sustainable development.