Chapter 3: Do Energy Use and Environmental Pollution Cause Income? A Study on the BRICS Nations

There have been increasing numbers of studies on the role of energy and environmental pollution upon income of the economies across the countries after the development of the endogenous growth literature. As standard practice, the factors which make explanations of why the developed countries are growing more compared to the common list of developing countries are the knowledge capital, role of institutions, etc. But, the roles of energy use and environmental resources upon economic growth have also been identified as additional source of endogenous growth. Sometimes, in certain economies, it is observed that both the factors maintain bidirectional causal relations with the level and growth of income. The present chapter aims to investigate whether energy use and environmental pollution make a cause to the level of income measured by gross domestic product, in both the long run and short run, for the world's highly developing group of economies in the nomenclature of BRICS. The period of study is taken to be 1990–2016 for which the data on all the indicators are available for the five member countries of the group. Using a VAR model, the study arrives at the conclusion that all the three are cointegrated for Brazil and Russia only. Further, there are short-run causal interplays among the three in different combinations across the member countries. While GDP and energy use are the common cause of CO2 emission for Brazil, India, and China; energy use and CO2 emissions are to GDP in India, South Africa, and China.