Environmental performance of OPEC countries: addressing the role of gross domestic product, energy consumption, trade openness and industrial structure

Abstract

Based on the Kuznets's environmental theory, we examine the effect on carbon dioxide (CO2) emission of gross domestic product (GDP), energy consumption, trade openness, and industrial structure in OPEC countries during 1974-2013, using the Full Modified Ordinary Least Square (FMOLS) method. We find that GDP, energy consumption, and industrial structure have positive effects on CO2 emission. The GDP squared, however, negatively affects CO2, although the effect is small. The positive effect of GDP but negative effect of GDP squared validates the environmental Kuznets curve for OPEC countries. In addition, we find that an increase in trade openness leads to decrease in CO2 emission. Using the panel vector error correction model (VECM) and Granger causality test, we confirm that long-run causality is supported for all of our equations. We also find bi-directional short-run causality between energy consumption and CO2 emission and between energy consumption and industrial structure. Moreover, we find one-way causality running from energy consumption to GDP, from CO2 emission to trade openness, from GDP to trade openness, and from GDP to emission.