The spatial analyses of consumption-based CO2 emissions, exports, imports, and FDI nexus in GCC countries

Abstract

Trade and foreign direct investment (FDI) could have environmental consequences for local and neighboring economies due to their spatial linkages and could also affect the production and consumption-based emissions. Hence, we examine their direct and spillover effects on territory-based CO₂ (TCO2) and consumption-based CO₂ (CCO2) emissions in GCC countries using a period 1990-2019 and spatial Durbin model (SDM). The empirical results have corroborated the presence of the environmental Kuznets curve (EKC) in an association of economic growth and emissions in both TCO2 and CCO2 models. Hence, economic growth has a positive relationship with CO₂ emissions at the first phase of the EKC and has a negative relationship with CO₂ emissions at the later stage of the EKC. The spillovers of economic growth were found the opposite in the case of TCO2 and insignificant in the case of CCO2. The effect of Financial Market Development (FMD) is found negative on TCO2 emissions and insignificant on CCO2 emissions. Exports have a positive direct effect on TCO2 emissions and have negative spillovers, direct, and total effects on CCO2 emissions. The positive direct effect of exports on TCO2 reflects that exports are raising TCO2 emissions in domestic economies. On the other hand, the negative direct effect of exports on CCO2 explains that exports are helping reduce CCO2 emissions in domestic economies. Moreover, negative spillovers of exports on CCO2 indicate that increasing exports of a GCC country helps reduce CCO2 emissions in neighboring countries. In addition, the negative total effect of exports on CCO2 implies that increasing exports reduce CCO2 emissions in the whole GCC region. Imports have positive spillovers and direct effects on TCO2 and have positive spillovers effects on CCO2 emissions. FDI has negative direct and spillover effects on CCO2 and positive spillover effects on TCO2. We suggest promoting FMD, FDI, and exports to have their positive ecological effects in GCC countries.

Keywords: CO2 emissions; Economic growth; Exports; FDI; FMD; Imports.