Interface between energy consumption, CO2 emissions, economic growth, and macroeconomic openness in financial action task force countries through the lens of a causality approach.

Abstract

There is strong scientific evidence to suggest that carbon dioxide (CO2) emissions are one of the key drivers of global warming. Rising CO2 emissions across the globe have been traced back to increasing global trade and rapid industrial development powered by fossil fuels. High CO2 emissions have had an adverse effect on the quality of life and economic growth of communities across the globe. In this study, the Granger causality approach is used to examine scientifically some causal relationships between energy consumption, CO2 emissions, economic growth, and key macroeconomic variables (trade openness and foreign direct investment) in the panel of Financial Action Task Force (FATF) countries. FATF countries are signatories to agreements to adhere to good financial practices to ensure sustainable development of their economies. The empirical analysis was conducted for the period 1980 to 2020. Results indicate a strong endogenous relationship between the variables in the short and long run. The analysis suggests that careful co-curation of economic, trade, energy, foreign direct investment, and environmental management policies is needed to ensure sustainable economic development in the FATF countries. Global trade and foreign direct investment policies must foster new environmental-friendly industries and greater use of clean renewable energy among these countries. Note: Arrows indicate direction of possible causal links between the variables.