Energy Consumption, Economic Growth and CO2 Emissions in Middle East and North African Countries 1

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1 Energy Consumpton, Economc Growth and CO2 Emssons n Mddle East and North Afrcan Countres 1 Mohamed El Hed AROURI EDHEC Busness School mohamed.arour@edhec.edu Adel BEN YOUSSEF GREDEG-CNRS & Unversé de Nce Sopha-Antpols adel.ben-youssef@unce.fr Hatem M'HENNI ESC Tuns, Unversy of Manouba hatem.mhenn@topnet.tn Chrstophe RAULT Toulouse Busness School, France chrstophe.rault@unv-orleans.fr ABSTRACT Ths artcle extends the recent fndngs of Lu (2005), Ang (2007), Apergs et al. (2009) and Payne (2010) by mplementng recent bootstrap panel un root tests and contegraton technques to nvestgate the relatonshp between carbon doxde emssons, energy consumpton, and real GDP for 12 Mddle East and North Afrcan Countres (MENA) over the perod Our results show that n the long-run energy consumpton has a posve sgnfcant mpact on CO 2 emssons. More nterestngly, we show that real GDP exhbs a quadratc relatonshp wh CO 2 emssons for the regon as a whole. However, although the estmated long-run coeffcents of ncome and s square satsfy the EKC hypothess n most studed countres, the turnng ponts are very low n some cases and very hgh n other cases, hence provdng poor evdence n support of the EKC hypothess. Thus, our fndngs suggest that not all MENA countres need to sacrfce economc growth to decrease ther emsson levels as they may acheve CO 2 emssons reducton va energy conservaton whout negatve long-run effects on economc growth. JEL Classfcaton: Q43, Q53, Q56 Keywords: Envronmental Kuznets Curve, Carbon doxde emssons, Energy consumpton, Growth. 1 We are grateful to two anonymous referees for very helpful comments on a prevous verson. We are also grateful to Professor James Hough for hs knd help. Usual dsclamer apples.

2 1. INTRODUCTION The relatonshp between envronmental qualy and economc growth s puzzlng. Accordng to the Envronmental Kuznets Curve (EKC) hypothess, as ncome ncreases, emssons ncrease as well untl some threshold level of ncome s reached after whch emssons begn to declne. There s n exstence a plethorc emprcal lerature of EKC, most of surveyed by Dnda (2004) and Stern (2004). Most emprcal studes have focused especally on emssons of varous pollutants such as sulphur and carbon doxde ( SO2 and CO 2 ) n ndustral countres. Wh regard to emergng economes, our lerature survey typcally ndcates that very few studes have been carred out and they manly consder major Asan and Latn Amercan countres and less attenton has been gven to smaller emergng countres, especally n the Mddle East and North Afrca regon (MENA) (Kraft and Kraft, 1978; Soytas et al. 2007; Ang, 2007; Soytas and Sar, 2009) 2. M henn (2005) tests for the EKC hypothess n Tunsa over the perod from1980 to He makes use of the Generalzed Method of Moments (GMM) and examnes the followng pollutants: CO 2 emssons, fertlzers concentraton and the numbers of cars n traffc whch served to calculate an ndex for envronmental qualy. He concludes that there s no evdence to support the EKC for any of these pollutants. In the same ven but wh a dfferent result, based on a contegraton analyss Chebb et al. (2009) establsh a posve lnkage between trade openness and per capa emssons and a negatve lnkage between economc growth and per capa polluton emssons n the long-run. Agan for Tunsa, Fodha et al. (2010) provde support for a long-run relatonshp between the per capa emssons of two pollutants and per capa GDP, ndcatng that there s a monotoncally ncreasng lnear relatonshp between per capa CO 2 emssons and per capa GDP, whle the relatonshp between the other envronmental ndcator,.e., SO2 and per capa GDP follows an N-shape, representng the EKC hypothess. Akbostanc et al. (2009) examne the relatonshp between CO 2, SO 2 and PM10 emssons, energy consumpton and economc growth n Turkey at two levels. They have looked for the EKC at natonal level and also for the 58 provnces n Turkey. They found a monotonc and ncreasng relatonshp at the natonal level. However, they found an N shaped curve at the level of provnces. Ther fndngs do not support the EKC. Mehrara (2007) nvestgated the causal relatonshp between per capa energy consumpton and per capa GDP n ol exportng countres. In hs sample, seven MENA countres were examned (Algera, Bahran, Iran, Saud Araba, Oman, Kuwa, and Uned Arab Emrates (UAE)). He 2 Please see Payne (2009) for an excellent recent survey on these works. 2

3 found strong undrectonal causaly from economc growth to energy consumpton. He suggests reformng energy prces n these countres whout loss of economc growth and wh an mprovement of envronmental qualy. Sar and Soytas (2009) nvestgate the relatonshp between carbon emssons, ncome, energy and total employment n fve selected OPEC countres (ncludng two MENA countres: Algera and Saud Araba) for the perod They manly focus on the lnk between energy use and ncome. Employng the autoregressve dstrbuted lag (ARDL) approach, they fnd that there s a contegratng relatonshp between the varables n Saud Araba and conclude that none of the countres needs to sacrfce economc growth to decrease ther emsson levels. Recently, Narayan et al. (2010) tested the Envronment Kuznet s Curve (EKC) hypothess for 43 developng countres for the perod from 1980 to They examned the EKC hypothess based on the short- and long-run ncome elastces vs-à-vs CO 2 emssons; that s, f the long-run ncome elastcy s smaller than the short-run ncome elastcy then s evdent for them that a country has reduced carbon doxde emssons as s ncome has ncreased. They found that for the Mddle Eastern panel, the ncome elastcy n the long run s smaller than the short run, mplyng that carbon doxde emsson has fallen wh a rse n ncome. By usng the same methodology Jaunky (2010) tested the EKC hypothess for 36 hgh-ncome countres (ncludng three MENA countres: Bahran, Oman and UAE) over the perod Carbon doxde emssons and GDP seres are ntegrated of order one and contegrated especally after controllng for cross-sectonal dependence. Undrectonal causaly runnng from real per capa GDP to per capa CO 2 emssons was uncovered n both the short run and long run. The emprcal analyss based on ndvdual countres suggests that for Oman (and for other 6 non MENA countres), as well as for the whole panel, CO 2 emssons have fallen as ncome rses n the long run. A 1% ncrease n GDP generates an ncrease of 0.68% n CO 2 emssons n the short run and 0.22% n the long run for the panel. These results do not provde evdence n favor of the EKC hypothess but ndcate that over tme CO 2 emssons are stablzng n rch countres. As we can see, the results of the avalable studes for the MENA countres are very heterogeneous. Compared to prevous works, our artcle nvestgates the MENA countres as a regon as well as at a country level by takng advantage of recent advances n the econometrcs of non-statonary panel data econometrc technques and seemngly unrelated regresson (SUR) methods. Its ams are threefold. Frst, we test for the EKC hypothess n 12 3

4 MENA countres for a major pollutant n the regon (CO 2 ). Second, we characterze the turnng ponts untl whch the economc development mproves the envronmental qualy n MENA Countres. Fnally, we explore the nature of the causaly relatonshp between economc growth, energy consumpton and emssons of CO 2. Thus, our artcle contrbutes to prevous emprcal verfcatons of the EKC hypothess (Stern, 2004; Ang, 2007; Cavgla- Harrs et al. 2009; Apergs and Payne, 2009) and n partcular those focusng on MENA Countres (Mehrara, 2007; Akbostanc et al. 2009; M'henn, 2005; Fodha and Zaghdoud, 2009) by usng new robust econometrc methods. The remander of ths paper s organzed as follows. Secton 2 presents the data, the econometrc models and dscusses the results. Secton 3 dscusses the polcy mplcatons of our man fndngs and concludes. 2. METHODOLOGY AND EMPIRICAL RESULTS 2.1. The model and data To conduct our emprcal analyss and nvestgate the relatonshp between CO2 emssons, energy consumpton and economc growth whch s a synthess of the EKC and energy consumpton growth leratures, we need the followng varables for all studed MENA countres: - CO 2 emsson (C); - Energy consumpton (E); - Per capa real GDP (Y). We collect data from World Bank Development Indcators (WDI). Our data are annual and cover the perod for the followng MENA countres: Algera, Bahran, Egypt, Jordan, Kuwa, Lebanon, Morocco, Oman, Qatar, Saud Araba, Tunsa, and UAE. The varables C, E and Y are measured n metrc tons per capa, kt of ol equvalent per capa and constant 2005 nternatonal dollars respectvely. We emprcally nvestgate the followng model based on varables n natural logarhms: C = a + b E + c Y + d Y 2 + ε (1) The coeffcents b, c and d represent the long-run elastcy estmates of CO 2 emssons wh respect to energy consumpton, real GDP and squared real GDP, respectvely. Accordng 4

5 to the dscusson above, we expect that an ncrease n energy consumpton leads to an ncrease n CO 2 emssons (b>0). Moreover, under the EKC hypothess an ncrease n ncome s assocated wh an ncrease n CO 2 emssons (c>0) and there s an nverted U-shape pattern at whch pont an ncrease n ncome leads to lower CO 2 emssons (d<0). In what follows, we start by testng for un roots n our varables. If these varables are non-statonary n our country panel, we nvestgate the exstence of long run contegraton relatonshps and nvestgate ther magnude. Fnally, we estmate panel error correcton models (ECM) n order to examne the nteractons between short and long run dynamcs of our envronmental varables Panel un root testng The body of lerature on panel un root and panel contegraton testng has grown consderably n recent years and now dstngushes between () the frst-generaton tests [Maddala and Wu (1999), Levn et al. (2002) and Im et al. (2003)] developed on the assumpton of the cross-sectonal ndependence of panel uns (except for common tme effects), () the second-generaton tests [Ba and Ng (2004), Smh et al.(2004), Moon and Perron (2004), Cho (2006) and Pesaran (2007)] allowng for a varety of dependence across the dfferent uns, and also () panel data un root tests that make possble to accommodate structural breaks. In addon, n recent years has become more wdely recognzed that the advantages of panel data methods whn the macro-panel settng nclude the use of data for whch the spans of ndvdual tme seres data are nsuffcent for the study of many hypotheses of nterest. To test for the presence of such cross-sectonal dependence n our data, we have mplemented the smple test of Pesaran (2004) and have computed the Cross secton Dependence (CD) statstc. Ths test s based on the average of par-wse correlaton coeffcents of the OLS resduals obtaned from standard augmented Dckey- Fuller regressons for each ndvdual. Its null hypothess s cross-sectonal ndependence and s asymptotcally dstrbuted as a two-taled standard normal dstrbuton. Results, avalable upon request, ndcate that the null hypothess s always rejected regardless of the number of lags ncluded n the augmented DF auxlary regresson (up to fve lags) at the fve percent level of sgnfcance. Ths confrms that the MENA countres are, as expected, crosssectonally correlated, whch can ndeed reflect here the presence of smlar regulatons n varous felds (such as envronmental polcy and regulaton, economy, fnance, trade, 5

6 customs, toursm, legslaton, and admnstraton), hgh economc, fscal and polcal corporaton and ncreasng fnancal and economc ntegraton. To determne the degree of ntegraton of our seres of nterest (C, E, Y, and Y 2 ) n our panel of 12 MENA countres, we employ the bootstrap tests of Smh et al. (2004), whch use a seve samplng scheme to account for both the tme seres and cross-sectonal dependences of the data through bootstrap blocks. The specfc tests that we consder are denoted t, LM, max, and mn. t s the bootstrap verson of the well-known panel un root test of Im et al. (2003), 1 N = s a mean of the ndvdual Lagrange Multpler (LM ) test statstcs, = 1 LM N LM orgnally ntroduced by Solo (1984), max s the test of Leybourne (1995), and mn = N 1 N = 1 mn s a (more powerful) varant of the ndvdual Lagrange Multpler (LM ), wh mn = mn( LM, LM ), where f r LM f and LM r are based on forward and backward regressons (see Smh et al., 2004 for further detals). We use bootstrap blocks of m=20. 3 All four tests are constructed wh a un root under the null hypothess and heterogeneous autoregressve roots under the alternatve, whch ndcates that a rejecton should be taken as evdence n favor of statonary for at least one country. The results, shown n Table 1 suggest that for all the seres (taken n logarhms) the un root null cannot be rejected at the 5% level of sgnfcance n our country panel for the four tests. 4 We therefore conclude that the varables are non-statonary n our country panel. 5 Table 1 Panel un root tests of Smh et al. (2004) for the carbon doxde emssons per capa and potental determnants ( ) * Carbon Doxde Emssons per capa (C) Energy per capa (E) Test Statstc (a) P-value* Statstc (b) P-value* Statstc (a) P-value* Statstc (b) P-value* t LM max The results are not very sensve to the sze of the bootstrap blocks. 4 The order of the seve s permted to ncrease wh the number of tme seres observatons at the rate T 1/3 whle the lag length of the ndvdual un root test regressons are determned usng the Campbell and Perron (1991) procedure. 5 The lag order n the ndvdual ADF type regressons s selected for each seres usng the AIC model selecton creron. Another crucal ssue s the selecton of the order of the determnstc component. In partcular, snce the cross-sectonal dmenson s rather large here, may seem restrctve not to allow at least some of the uns to be trendng, suggestng that the model should be fted wh both a constant and trend. However, snce the trendng turned out to be not very pronounced, we have consdered that a constant s suffcent n our analyss. Actually, the results of the bootstrap tests of Smh et al. (2004) are not very sensve to the ncluson of a trend n addon to a constant n the estmated equaton (see Statstc b n Table 1). We have of course also checked usng the bootstrap tests of Smh et al. (2004) that the frst dfference of the seres are statonary, hence confrmng that the seres expressed n level are ntegrated of order one. 6

7 mn Per Capa Real GDP (Y) Square of Per Capa Real GDP (Y 2 ) Test Statstc (a) P-value* Statstc (b) P-value* Statstc (a) P-value* Statstc (b) P-value* t LM max mn Notes: (a) Model ncludes a constant. (b) Model ncludes both a constant and a tme trend. * Test based on Smh et al. (2004). Rejecton of the null hypothess ndcates statonary at least n one country. All tests are based on 2,000 bootstrap replcatons to compute the p-values. Null hypothess: un root (heterogeneous roots under the alternatve) Panel contegraton Gven that all the seres under nvestgaton are ntegrated of order one, we now proceed wh the two followng steps. Frst, we perform 2 nd generaton panel data contegraton tests (that allow for cross-sectonal dependence among countres) to test for the exstence of contegraton between C and s potental determnants E, Y, Y 2 contaned n X. Second, f a contegratng relatonshp exsts for all countres, we estmate for each country the crosssecton augmented contegratng regresson C = α + γ X + µ 1 Ct + µ 2 X t + u, = 1,..., N; t = 1,..., T (2) by the Cross Correlated Effects (CCE) estmaton procedure proposed by Pesaran (2006) that allows for cross-secton dependences that potentally arse from multple unobserved common factors. The contegratng regresson s augmented wh the cross-secton averages of the dependent varable and the observed regressors as proxes for the unobserved factors. Accordngly, C t and X tdenote respectvely the cross-secton averages of C and X n year t. Note that the coeffcents of the cross sectonal means (CSMs) do not need to have any economc meanng as ther ncluson smply ams to mprove the estmates of the coeffcents of nterest. Therefore, ths procedure enables us to estmate the ndvdual coeffcents γ n a panel framework. 6 In addon, we also compute the CCE-MG estmators of Pesaran (2006). For nstance, for the γ parameter and s standard error for N cross-sectonal uns, they are easly obtaned as 6 Note that n order to estmate the long-run coeffcents we have also mplemented the Pooled Mean Group (PMG) estmators (see Pesaran and Smh (1995), Pesaran, Shn and Smh (1999)), whch allowed us to dentfy sgnfcant dfferences n country behavour. However, we only report the results of the Common Correlated Effects (CCE) estmators developed by Pesaran (2006), snce they allow takng unobservable factors nto account, whch would not be the case of the PMG estmators. 7

8 follows: ˆ γ N ˆ γ CCE = CCE MG = 1 N N σ ( ˆ γ CCE ), and = 1 SE( ˆ γ CCE MG ) =, where γˆ and CCE σ ( ˆ γ CCE ) N denote respectvely the estmated ndvdual country tme-seres coeffcents and ther standard devatons. We now use the bootstrap panel contegraton test proposed by Westerlund and Edgerton (2007). Ths test reles on the popular Lagrange multpler test of McCoskey and Kao (1998), and makes possble to accommodate correlaton both whn and between the ndvdual cross-sectonal uns. In addon, ths bootstrap test s based on the seve-samplng scheme, and has the advantage of sgnfcantly reducng the dstortons of the asymptotc test. Another appealng advantage s that the jont null hypothess s that all countres n the panel are contegrated. Therefore, n case of non-rejecton of the null hypothess, we can assume that there s contegraton between C and s potental determnants contaned n X. The asymptotc test results (Table 2) ndcate the absence of contegraton. However, ths s computed on the assumpton of cross-sectonal ndependence, whch s not the case n our panel. Consequently, we also used bootstrap crcal values. In ths case we conclude that there s a long-run relatonshp between carbon doxde emssons and potental determnants, mplyng that over the long-run they move together. Table 2 Panel contegraton between carbon doxde emssons and potental determnants ( ) LMstat Asymptotc p-value p-value # Model wh a constant term Notes: bootstrap based on 2000 replcatons. a - null hypothess: contegraton of carbon doxde emssons and potental determnant seres. # Test based on Westerlund and Edgerton (2007) The magnudes of the contegraton relatonshp Gven the evdence of panel contegraton, the long-run polluton ncome relatons can be further estmated by several methods for panel contegraton estmaton. We estmate the above equaton to assess the magnude of the ndvdual γ coeffcent n the contegratng relatonshp wh the CCE estmaton procedure developed by Pesaran (2006), whch addresses cross-sectonal dependency. C = α + γ E + γ 2 Y + γ 3 Y + u 2 (3) 8

9 wh = 1,..., N, t = 1,..., T, and the respectve estmaton results are reported n Table 3. Table 3 Indvdual country CCE estmates for 12 MENA countres for the carbon doxde emssons and potental determnants ( ) Country E Y Y 2 Constant γ 1 t-stat γ 2 t-stat γ 3 t-stat α t-stat Algera 1, Egypt Jordan Lebanon Morroco Tunsa Bahran Kuwa UAE Oman Qatar Saud Araba Note: the coeffcents of the varables E and X 1 t of equaton (a) have not been reported n the table. t In most cases, the parameters are que sgnfcant at the 1% level of sgnfcance. The relatonshp between energy consumpton and CO 2 emssons s posve except for Bahran, Egypt and Kuwa. The results ndcate that a 1% ncrease n energy usage per capa ncreases CO 2 emssons per capa by 1.688% n Saud Araba and by only 0.052% n Oman. From the sgn of the parameter, the results show that there are nverse U-shaped relatonshps between per capa polluton and per capa GDP for all studed MENA countres, expect Morocco, Tunsa and UAE. For nstance, for Egypt the elastcy of CO 2 emssons per capa wh respect to real GDP per capa n the long-run s Y wh the threshold ncome of (n logarhms). Whle, for another north Afrcan country, Algera, the elastcy s Y wh the threshold ncome of (n logarhms). For Saud Araba, the elastcy of CO 2 emssons wh respect to real GDP s Y, mplyng a threshold ncome of only (n logarhms). The Tunsan case deserves specal attenton, snce s the only country where a posve monotonc relatonshp between ncome and emssons of CO 2 s found (the elastcy s Y). Morocco and the UAE deserve further nvestgatons because we found an nverted curve as compared to what s predcted by the theory. We have to pont out that for all the countres where we found an EKC, we are confronted by the problem of the poson of the threshold compared to the level of real GDP reached by 9

10 each country durng the perod. Our calculatons (see table 4) lead us to conclude that none of the studed cases verfed ths partcular EKC hypothess, except Jordan. Jordan was among the orgnal 30 countres n 1980 to declare support for the World Conservaton Strategy. Another mlestone s the "Natonal Envronment Strategy" for Jordan (NES). In October 1995, the new Jordanan Envronmental Law was passed to acheve the prncpal objectves mentoned n the NES, and the Natonal Envronmental Acton Plan (NEAP) was prepared n September 1996, the natonal Agenda-21 project was launched to lay the ground for sustanable resource development and envronmentally sound management n the country. Table 4- EKC for CO2 n the MENA regon ( ) Country Intercept Inverted U Turnng shape curve pont Ymax Ymn EKC Algera Y Yes Very hgh No Egypt Y Yes No Jordan Y Yes Yes Lebanon Y Yes No Morocco Y No? No Tunsa Y No Monotonc No Bahran Y Yes No Kuwa Y Yes No UAE Y No? No Oman Y Yes No Qatar Y Yes No Saud Araba Y Yes No 12 countres Y Yes Yes Fnally, the results from the common correlated effects mean group (CCE-MG) method are reported n Table 5. Table 5 Results for common correlated effects mean group (CCE-MG) estmatons, 12 MENA countres ( ) for CO 2 emssons (1) X= (E, Y, Y 2 ) Constant (-5.22) E 0.47 (2.86) Y 1.23 (3.28) Y (-4.22) Note: t-statstcs are n parentheses. 10

11 On average, over the studed MENA countres, there s a posve relatonshp between CO 2 emssons and energy consumpton: a 1% ncrease n energy consumpton per capa ncreases CO 2 emssons per capa by 0.47% n the MENA regon. As for the average EKC hypothess: the elastcy of CO 2 emssons per capa wh respect to real GDP per capa n the long-run s Y wh the threshold ncome of (n logarhms). Taken together, our results are supportve of the EKC hypothess n the MENA regon: the level of CO 2 emssons frst ncreases wh ncome, then stablzes, and then declnes. Thus, there appears to be an nverted U-shaped relatonshp between CO 2 emssons per capa and real GDP per capa n the MENA regon when taken as a whole. The heterogeney of the countres' sample wh manly rch ol producng countres and the others leads to a broad gap between Ymn (USD 2 254) and Ymax (USD ). Ths suaton ncreases the probably that the turnng pont would be between the two data. At the same tme we can also pont out that only Kuwa, Qatar and UAE had reached ths turnng pont level n terms of per capa GDP Estmaton of a panel ECM representaton In the prevous sub-secton we have estmated the long-run relatonshps between carbon doxde emssons and potental determnants for our panel of 12 MENA countres, usng the common correlated effects mean group (CCE-MG) estmates (see Table 3). Havng establshed the long-run structure of the underlyng data and gven that there exsts a long-run relatonshp for all countres n our four panel sets, we turn to the estmaton of the complete panel error-correcton model (PECM) descrbed by equaton (4): ΔC = p j= 1 j j p j= 0 j j [ C α γ X ] ε, β C + θ ΔX + λ (4) We use the Pooled Mean Group (PMG) approach of Pesaran, Shn and Smh (1999), wh long-run parameters obtaned wh CCE technques, n order to obtan the estmates of the loadng factors λ (weghts or error correcton parameters, or speed of adjustment to the equlbrum values), as well as of the short-run parameters β j and θ j for each country of our 11

12 panel. Consequently, the loadng factors and short-run coeffcents are allowed to dffer across countres. 7 The lag length structure p s chosen usng the Schwarz (SC) and Hannan-Qunn (HQ) selecton crera, and by carryng out a standard lkelhood rato testng-down type procedure to examne the lag sgnfcance from a long-lag structure (started wh p=4) to a more parsmonous one. Afterwards, n order to mprove the statstcal specfcaton of the model, we mplemented systematcally Wald tests of excluson of lagged varables from the short-run dynamc (they are not reported here) to elmnate nsgnfcant short-run estmates at the 5% level. The results of the PECM estmatons based on equaton (4) are reported n Table 6, only for sgnfcant short-run estmates at the 5% level. Table 5 Panel Error-Correcton estmatons for C, X= (E, Y, Y 2 ), ( ) D C -1 D C -2 DE DE -1 DY t DY -1 D Y 2 Loadng factor λ Algera (2.55) (2.86) (3.65) (-2.43) (-4.23) Egypt (-1.80) 0.25 (2.13) 0.53 (2.26) 1.54 (2.98) (-2.35) Jordan 0.41 (3.43) 0.66 (5.09) (-1.99) (2.49) (-3.20) Lebanon (-3.01) (-2.71) Morroco 0.25 (2.91) 0.54 (4.06) (-2.22) (-3.62) (-4.09) Tunsa (-3.86) 0.38 (3.02) 0.94 (2.12) 0.05 (1.975) Bahran 0.54 (2.03) (-1.98) Kuwa 0.24 (2.60) 0.51 (3.23) (-2.25) (-3.23) UAE 0.31 (2.48) 0.67 (2.66) (-2.73) Oman (2.57) (-2.34) Qatar 0.38 (2.90) 0.19 (2.05) 0.40 (2.18) (-2.23) Saud Araba 0.22 (2.20) 0.46 (2.30) (-2.91) (-2.37) ntercept E Y Y 2 CCE-MG (-5.22) 0.47 (2.86) 1.23 (3.28) (-4.22) Notes: The estmatons are obtaned from the Pooled Mean Group approach wh long-run parameters estmated wh CCE technques. The coeffcents of the varables E and X 1 t of equaton (2) have not t 7 Note that before consderng equaton (3), we frst used a Wald statstc to test for common parameters across countres (.e λ = λ, and γ =γ, for =1,...,N) wh the CCE technques of Pesaran (2006) that allow common factors n the cross-equaton covarances to be removed. We found that only the null hypothess γ =γ, for =1,,N was not rejected by data, whereas the speeds of adjustment λ vary consderably across countres (results are avalable upon request). 12

13 been reported n the table. t-statstcs are n brackets. C Carbon Doxde Emssons; E Energy; Y Per Capa Real GDP; Y2 Square of Per Capa Real GDP. Results from Table 5 allow checkng for two sources of causaton: (1) the lagged dfference terms (short-run causaly) and/or (2) the error correcton terms (long-run causaly). The short-run dynamcs confrm the evdence of sgnfcant posve causaly from energy consumpton to CO 2 emssons. The causaly from GDP to CO 2 emssons depends on the level of economc growth. As for the long-run dynamcs, the loadng factor, whch measures the speed of adjustment back to the long-run equlbrum value, s sgnfcantly negatve n all cases (except for Tunsa) confrmng that all the varables of our model move together over the long run. Thus, the long-run equlbrum devaton has a sgnfcant mpact on the growth of CO 2 emssons. 3. CONCLUSION AND POLICY IMPLICATIONS Our artcle had three ams. Frst, we nvestgate the exstence of EKC n the MENA regon (taken nto account 12 Countres) n the matter of Carbon doxde. Second, we nvestgate the exstence of EKC for each country. Fnally, we explore the nature of the causaly relatonshp between economc growth, energy consumpton and emssons of CO 2. Our study extends the recent works of Lu (2005) and Ang (2007) and Apergs and Payne (2009) by mplementng recent bootstrap un root tests and panel contegraton technques to nvestgate the relatonshp between carbon doxde emssons, energy consumpton, and real GDP for 12 MENA countres over the perod Regonal-level Departng from the hypothess that the 12 countres are homogenous and lookng at the regonal-level, our results show that n the long-run energy consumpton has a posve sgnfcant mpact on CO 2 emssons n MENA regon. More nterestngly, we show that real GDP exhbs a quadratc relatonshp wh CO 2 emssons. Taken together, our fndngs support an nverted U-shape pattern assocated wh the Envronmental Kuznets Curve hypothess for the MENA regon: CO 2 emssons ncrease wh real GDP, stablze, and then decrease. Our result can be explaned by at least three complementary arguments. Frstly, most of MENA countres have made strong effort n matter of buldng a capacy to manage envronmental problems and especally ar polluton. Over the past two decades, most MENA 13

14 Countres have bult specfc envronmental nstutons n order to meet the challenges they face. Most MENA countres have dedcated Mnstry for envronment and specfc laws for dfferent envronmental areas lke Water polluton, Sol polluton, Ar polluton. In some countres specfc agences have been dedcated for these specfc areas. The declne of the CO2 emssons as GDP ncreases may be explaned by more effectveness of these nstutons and laws. Secondly, the rase of czens awareness as GDP ncreases may explan the change of CO2 emssons about clmate change n those countres and the move towards more sustanable consumpton of energy. Producers (Multnatonals) are aware about the Greenhouse effects and are usng technologes savng energy and dmnshng the CO2 emssons. By consequence the consumers n MENA countres are benefng from ths technologcal change. As an example, the car Park n MENA Countres s rapdly changng and consumers are adoptng more energy savng cars. Thrdly, most of MENA Countres, after a long perod of subsdzng the Ol n ther domestc countres are movng toward a polcy of the true prces and are cuttng these subsdes. As a consequence there s a shft n the consumpton of energy and the use of technologes savng energy and less pollutng. Our fndngs support that at the macro-level the regon s movng toward a new stage where economc development s not causng envronmental degradaton measured by CO2 emssons. Small changes n every country s causng bg shft n the whole regon. Country-Level At the country-level, our results show that EKC s not verfed for the studed countres except for Jordan. Although the estmated long-run coeffcents of ncome and s square satsfy the EKC hypothess n most studed countres, the EKC turnng ponts are very low n some cases and very hgh n other cases, hence provdng rather poor evdence n support of the EKC hypothess. Ths result s puzzlng but can be explaned by two complementary arguments. Frstly, most of these countres are explorng new pattern of economc growth and CO2 emssons but ther current efforts and polces are not suffcent n order to reverse the general trend. They have not yet reached the regme of a posve effect of growth on CO2 emssons. The economc composon of these economes s changng slowly. Most of these countres are based on prmary sector (Renter States 8 ) and the shft toward a servce economy s low. Some countres lke Qatar, Uned Arab Emrates, Tunsa, and Morocco are explorng a shft 8 The term Renter States connotes a country that derves most of s natonal ncome from the external sale of natural resources. 14

15 n ther structural economc composon. When ths change becomes more vsble EKC becomes verfed at the country level. Secondly, most of these countres are movng toward pro-actve approach of ecologcal modernzaton. In the case of Gulf Cooperaton Councl countres (GCC), the shft towards more energy effcency could mprove ther performance (Doukas et al, 2006). These countres are explorng new polces but ths reorentaton has not yet resulted n the development of consstent strateges and polces (Reche, 2010). A gradual prce hkes and government retroftng of buldngs are largely recommended as polces for mprovng the current suaton (Krane, 2010). At the same tme one must menton the several natves n matter of renewable energy taken n Algera, the Kngdom of Saud Araba and other MENA countres lke the poneerng project of Masdar Sustanable Cy 9. These natves are changng the suaton and are expected to mprove the suaton n the next years. The efforts and polces changes are not captured by actual statstcs and the EKC s not verfed at the country level, however all these natves are mprovng the suaton. Fnally, our results confrm the EKC s a sensve construct, whch depends on the level of observaton. Snce then we must be careful wh ths tool n order to formulate economc polces. For MENA countres, we demonstrate that the curve s vald at the regonal-level and we can gve sold explanaton for ths fact by consderng recent efforts made at the polcal, nstutonal and economc levels. However the explanaton s not vald at the country-level. Several prevous papers have addressed ths pont by explorng the dfferences between regonal provnces and a country level and fnd conclusons close to ours. REFERENCES. Akbostancı E., Turut-Asık S. and Tunç G. (2009): The relatonshp between ncome and envronment n Turkey: Is there an envronmental Kuznets curve?. Energy Polcy 37, Ang, J. B. (2007): CO2 emssons, energy consumpton, and output n France. Energy Polcy, 5, Apergs N. and Payne J.E. (2009): CO2 emssons, energy usage and output n Central Amerca. Energy Polcy 37 (2009) Ba, J., Ng, S. (2004). A PANIC Attack on Un Roots and Contegraton, Econometrca, 72 (4), Campbell, J. and Perron, P. (1991): Pfalls and Opportunes: What Macroeconomsts should know about Un Roots, n Blanchard, O. and Fsher, S. (eds.), NBER Macroeconomcs Annual. Cambrdge, MA: MIT Press. Cavgla-Harrs Jll L., Chambers D. and Kahn James R. (2009): Takng the U out of Kuznets a comprehensve analyss of the EKC and envronmental degradaton. Ecologcal Economcs 68, Chebb H., Olarreaga M. and Zouna H. (2009): Trade openness and CO2 emssons n Tunsa. ERF 16th Annual Conference, November 7-9, Cho, I. (2006): Combnaton Un Root Tests for Cross-Sectonally Correlated Panels. In: Corbae, D., Durlauf, S. and Hansen, B. (eds.), Econometrc Theory and Practce: Fronters of Analyss and Appled Research: Essays n Honor of Peter C. B. Phllps. Cambrdge Unversy Press, Chap. 11, pp Dnda, S. (2004): Envronmental Kuznets Curve Hypothess: A Survey. Ecologcal Economcs, 49, Doukas H.,Patlzanas, K,D., Kagannas, A., and Psarras, J. (2006): Renewable Energy sources and Ratonal Use of energy Development n the Countres of GCC: Myth or realy? Renewable Energy 31, MENA countres are estmated to have a potental to generate 630,000,000 megawatts of solar power and also megawatts of wnd power potental (Ghaddar, 2009). 15

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