Growth, Structural Transformation and Carbon Emissions

Overview & Synopsis

The environmental Kuznets curve postulates an inverted-U relationship between environmental degradation and economic growth. And economic growth has been synonymous with structural transformation. How do patterns of growth and structural transformation relate to carbon emissions? Based on data across almost 100 countries between 1960 and 2017, we find that the movement of workers into the manufacturing and services sectors is associated with a higher carbon emissions intensity of GDP. However, this positive association diminishes at higher shares of employment in both the manufacturing sector and modern, knowledge-intensive services. The diminishing positive association between emissions intensity and structural transformation towards these sectors is more discernible for developing economies compared with advanced economies. Further, based on sector-specific carbon emissions across 66 countries between 1995 and 2018, we find evidence of convergence in the carbon emissions intensity of production across countries in all sectors, with the potential for further reductions in developing economies, especially given relatively high indirect carbon emissions through inter-sectoral linkages.