On the resiliency of post-crisis decoupling in higher-order economy-energy-environment nexus in high-inflation developing economies

Abstract Macroeconomic pathways of enabling decoupling of emissions from economic growth in a post-crisis period is analyzed in this study for the high-inflation developing economy of India. A novel control system internalizing the inherent stochasticity of economy-energy-environment (3E) nexus extends the interpretation of Environmental Kuznets Curve hypothesis, where this study finds that decoupling is an emergent phenomenon of a 3E system. Using Zivot-Andrews unit root test, adaptive error correction modelling and robustness analysis through information theory-based approximate entropy method, the stochastic model is found to reproduce real-world higher order phenomena more accurately than previously theorized systems. With high entropy (information content) in long-run and short-run coefficients, the stochastic model can replicate the resiliency speed in a post-crisis period, without new information input. Some key findings of policy/macroeconomic linkages include: (a) decoupling progress lies in capital building and inhibited by inflationary growth; (b) fossil fuel imports, inflation and energy-use have a whiplash effect on carbon emissions in post-crisis periods; (c) electricity and non-electric-energy have differential effect on trade, with decoupling prevalent in electricity sector only; (d) inflation opposes GDP-emission causality during business cycle movements; (e) decoupling policies should be discretized to growth and recession phases of business cycle, with inflationary fossil fuel rebounds actively disincentivized in recession periods.