The report titled “The GDP–CO2 Emissions Nexus in Arab Countries” by the Arab Monetary Fund explores the relationship between economic growth (Gross Domestic Product, GDP) and carbon dioxide (CO2) emissions in Arab countries. The study examines the environmental impact of economic development in the region and provides insights into the dynamics between economic growth and carbon emissions.
The report finds that Arab countries have experienced significant economic growth over the years, leading to increased energy consumption and greenhouse gas emissions. It highlights the importance of understanding the GDP-CO2 emissions nexus to develop effective strategies for sustainable development and environmental protection.
The findings suggest that there is a positive correlation between economic growth and CO2 emissions in Arab countries. However, the magnitude of this relationship varies across countries, indicating the influence of country-specific factors. The study emphasizes the need for tailored policies and measures to address the environmental challenges faced by each country.
Additionally, the report identifies several policy implications for Arab countries to mitigate CO2 emissions while maintaining economic growth. These include promoting energy efficiency, investing in renewable energy sources, adopting cleaner technologies, improving industrial structure, and implementing effective environmental regulations.
The current study examined the effect of GDP per capita on CO2 emissions in Arab countries. The EKC hypothesis framework was adopted to validate the existence of a non-linear association between GDP and CO2 emissions. The mentioned hypothesis suggests that income initially works as an emissions-stimulating factor but lowers emissions after exceeding a certain threshold level. Thus, estimating the GDP turning point beyond which the progression of GDP per capita improves environmental quality is vital. Another critical objective of this study was to determine the effect of renewable energy consumption on CO2 emissions in the region. Given the available panel data, the PMG estimation procedure was used to address potential discrepancies in the sample. Further, this research divided the sample into two categories based on income level: high-income and non-high-income, to control for heterogeneity in the sample.
The study’s findings showed that the EKC hypothesis was not present when the whole sample was used in the long run. When heterogeneity was controlled for in the sample, the results showed that the GDP had a positive effect on CO2 emissions, whereas GDP squared had a negative impact on CO2 emissions in both high-income and non-high-income Arab countries. These outcomes signified the existence of the EKC hypothesis in Arab countries. A significant finding from this study was the valid income turning point for high-income countries to be about US$ 58,151, and about US$ 9,685 in non-high-income countries. Regarding the long-run effect of renewable energy consumption as a share of total energy consumption on CO2 emissions, a significant negative impact was observed due to the increase in renewable energy in the selected Arab countries. These results are supported by the idea that many Arab countries started to respond to climate change with policies and strategies aimed at controlling the emissions of greenhouse gases, such as CO2, and increasing reliance on renewable energy sources. Some examples of policy efforts are the Saudi Green Initiative, the Middle East Green Initiative, and the UAE 2050 Net Zero Initiative. Energy prices emerged as a reliable factor inversely related to CO2 emissions in the analysis of the whole sample and the non-high-income group. Still, it was statistically insignificant in the case of high-income countries in the long run. The absence of energy subsidies typically causes higher price fluctuations, and as changes in energy prices grow, CO2 emissions decrease. This result makes more sense because countries with higher wealth and resources are less affected by energy price fluctuations due to the small size of the energy consumption in the consumer price index (CPI) basket. Lastly, the impact of trade openness on CO2 emissions was negative and significant in the high-income group and positive in non-high-income countries.
This study has contributed to recent debates concerning climate change and future economic prospects by suggesting that the transformation toward utilising renewable resources is essential to reducing greenhouse gas emissions. Moreover, economic reforms that eliminate energy subsidies could be crucial in mitigating environmental hazards. The present study has laid the groundwork for future research into the macroeconomics of climate change, which is an intriguing topic and could be usefully explored in further research. More analysis using specific country data could help to make more precise recommendations.
Although the results suggest that it is recommended for government representatives in Arab countries to adopt the EKC hypothesis as a foundation for their environmental quality initiatives, however, several countries’ income level is yet to reach the turning point. Therefore, the authorities in Arab nations must adopt appropriate measures to limit environmental harm and resource depletion rather than relying only on gains in economic growth to reduce emissions, which may happen after reaching the income threshold. Additionally, advocating innovation and investment in green technologies will help reduce CO2 emissions, i.e., decarbonisation and energy-efficient machines. Most importantly, relying more on investment in renewable energies, such as solar and wind energy, could be appropriate due to the region’s geography.
Overall, the report serves as a valuable resource for policymakers, researchers, and stakeholders in Arab countries, providing insights into the complex interplay between economic growth and environmental sustainability. It emphasizes the importance of balancing economic development with environmental conservation to achieve sustainable and inclusive growth in the region.