On the causal dynamics between CO2 emissions, health expenditures and economic growth

• This study examines the causal relationship between CO2 emissions, health expenditures and economic growth.
• We use simultaneous-equation models estimated by the GMM.
• We found that there is bidirectional causality between CO2 emissions and economic growth, between health expenditures and economic growth.
• We also found there is unidirectional causality from CO2 emissions to health expenditures.

The objective of the study is to examine the causal relationship between CO2 emissions, health expenditures and economic growth using dynamic simultaneous-equations models for a global panel of 51 countries over the period 1995–2013. The study also implements these empirical models for three groups: low income group, lower middle income group and upper middle income group countries. Our empirical results show that there is bidirectional causality between CO2 emissions and economic growth, between health expenditures and economic growth for the global panel, and there is unidirectional causality from CO2 emissions to health expenditures, except low income group countries. It has also been found that health plays an important role in economic growth it limits its impact on an increasing deterioration of environmental quality. These research findings would certainly serve as usefully effective policies instruments aiming at maximizing both the environmental and health gains highly associated with economic growth and development.