Analyzing Nexus between Economic Complexity, Renewable Energy, and Environmental Quality in Japan: A New Evidence from QARDL Approach

Abstract

The economic complexity index is an effective dimensionality reduction tool that is applied to forecast and predict future economic growth, income, and environmental quality. Renewable energy plays an important role in mitigation of carbon dioxide emissions. This study explores the nexus between economic complexity, renewable energy, FDI, trade, and environmental quality in Japan for the period 1970Q1-2019Q4. We use carbon dioxide (CO2) emissions as dependent variable while economic complexity index (ECI), foreign direct investment (FDI) inflow, renewable energy (RNE), and trade as explanatory variables. This study applies a quantile autoaggressive approach for analysis; the result of this study suggests a long-run implication of the ECI, FDI, GDP, RNE, and trade for the CO2 emissions. While only RNE and trade show mixed results in the short run, the rest of the variables do not have short-run implications. This implies that emissions mostly result in the industrial production activities only in the long run and in some quantiles only in the short run. The Japanese government may adopt different measures to reduce the CO2 emissions in the country, such as carbon tax and tax exemption on renewable energy investment. Furthermore, the government may adopt the renewal energy in production, which could achieve sustainable development goal.