Impacts of economic indicators on environmental degradation: Evidence from MENA countries

The relationship between economics and environment has been studied for a few decades. Economists have tested Environmental Kuznets Curve (EKC) hypothesis and Pollution Haven Hypothesis (PHH) for emerging economies, particularly concentrating on Asian and Latin American countries. A new phenomenon is that such kinds of studies concentrating on the Middle East and North African (MENA) countries have recently gained momentum. But what is lacking in spite of this momentum is that the studies using recent panel data techniques are quite few. The main goal of this paper is to test these two hypotheses for nine middle-income MENA countries, that is, Algeria, Egypt, Iran, Jordan, Morocco, Pakistan, Sudan, Tunisia, and Turkey, during the period between 1980 and 2013. The dependent variable of this study is CO2 emissions while independent variables are income per capita, its square, FDI inflows, and energy use per capita. Methodologically, the study uses panel cointegration tests and long-run panel data estimators to see whether the EKC hypothesis and the PHH do explain the relationship. Moreover, Dumitrescu-Hurlin panel causality test is employed to find causal relationships between all the variables. Empirical findings reveal that these variables are cointegrated in the long-run. In addition, long-run coefficients of the model are estimated by Pedroni's Dynamic Ordinary Least Squares estimator. Besides these, findings suggest that the EKC hypothesis is valid for only four countries, that is, Algeria, Egypt, Sudan, and Turkey but the threshold level is not reached yet. On the other hand, the coefficients of FDI have positive signs for all the countries, and they reveal that FDI inflows increase emission levels for the MENA region. Particularly, the coefficients of FDI inflows are very high in Algeria and Iran. It is clear that FDI inflows to Algeria and Iran mainly consisted of dirty industries. Lastly, energy use is the most polluting determinants of emission levels for most countries. Findings also support that only three one-way causal relationships exist, that is, from emission level to FDI, from emission level to income level, and from energy use to FDI.