Greenhouse Gas Emissions, Economic Factors, and Socio-Economic Dynamics in Canada

Abstract

This study examines the economic and socio-economic determinants of greenhouse gas emissions in Canada over 1990–2024. It analyzes whether economic growth, population density, energy consumption, renewable energy, financial development, income inequality, and trade openness influence emissions in the long run and short run. A Vector Error Correction Model (VECM) is employed after confirming that the variables are integrated of order one and cointegrated, while Fully Modified Ordinary Least Squares (FMOLS) is used to verify the robustness of the long-run results. The findings reveal that economic growth, population density, energy consumption, income inequality, and trade openness increase greenhouse gas emissions in the long run, whereas renewable energy and financial development reduce them. The short-run results point in the same general direction, and the error-correction term indicates that deviations from long-run equilibrium are gradually corrected over time. Granger causality results further show unidirectional causality running from all explanatory variables to emissions, with no reverse causality detected. The FMOLS estimates confirm the stability of the main long-run results. Taken together, the findings suggest that greenhouse gas emissions in Canada are shaped not only by energy use and economic expansion, but also by demographic pressure, social distribution, financial conditions, and external integration. The study therefore supports a broader policy approach that links environmental improvement to coordinated changes in economic and socio-economic structure.