An empirical assessment of electricity consumption and environmental degradation in the presence of economic complexities

Abstract

To a large extent, the theories and concepts behind the effect of ecological footprint have been the paramount concern of the recent literature. Since the rising and falling of environmental degradation have been a continuous issue since the first phase of development, determinants such as economic complexity may play a critical role in achieving long-term sustainable development in the framework of environmental Kuznets curve (EKC) paradigm. Therefore, this research expands on the notion of an EKC paradigm for the world’s top ten most complex economies by considering four variables, such as real GDP per capita, electricity consumption, trade openness, and a new putative factor of environmental obstacle, the economic complexity index (ECI). This is one of the first studies to look at the impact of ECI on the ecological footprint of a specific sample from 1998 to 2017. The findings demonstrate a continuous inverted U-shaped link between real GDP per capita, the square of real GDP per capita, and ecological footprint. The EKC hypothesis is found to be valid in the long term in the examined complex economies. The findings of the panel autoregressive distributed lag (ARDL) of the pooled mean group (PMG) and fully modified ordinary least squares (FMOLS) estimations demonstrate that in the long term, electric power usage contributed to the carbon footprints. Furthermore, the economic complexity index and trade openness increase environmental performance over time. To determine if there is causation between the variables, we employ the panel vector error correction model (VECM) framework. Particularly, the results show unidirectional causality running from electric power consumption to ecological footprint and bidirectional causal relationship between (1) economic growth and ecological footprint; (2) square of economic growth and ecological footprint; (3) economic complexity index and ecological footprint; and (4) trade openness and ecological footprint.