Modelling the connection between energy consumption and carbon emissions in North Africa: Evidence from panel models robust to cross-sectional dependence and slope heterogeneity

Abstract

This paper explored the link between energy consumption and carbon emissions in North Africa through an Environmental Kuznets Curve (EKC) framework. Panel data extracted from the data base of the World Development Indicators (WDI) for the period 1990–2015 were used for the study. In the analytical process, more modern econometric techniques that are vigorous to cross-sectional dependence and slope heterogeneity were employed. From the findings, the studied panel was heterogeneous and cross-sectionally dependent. Also, all the series were first differenced stationary and cointegrated in the long-run. Further, the Augmented Mean Group (AMG) and the Common Correlated Effects Mean Group (CCEMG) estimators affirmed energy consumption as a significantly positive determinant of CO2 emissions. Also, urbanization and foreign direct investments promoted the emanation of CO2 in the block. Finally, an inverted U-shaped relationship between economic growth and CO2 emissions was disclosed, validating the EKC hypothesis. On the causal connections amid the series, there was a bidirectional causality between energy consumption and CO2 emissions, economic growth and CO2 emanations, and urbanization and CO2 emissions. Lastly, a unidirectional causality from foreign direct investments to CO2 emissions was unfolded. Based on the findings, it was recommended among others that, the countries should advocate for the consumption of renewable energies like wind, solar, hydro, biomass and biofuels among others. This will help to reduce the rate of emissions in the bloc.