Probing the Energy-Environmental Kuznets Curve Hypothesis in Oil and Natural Gas Consumption Models Considering Urbanization and Financial Development in Middle East Countries

Muhammad Shahid Hassan,Nabil Maalel,Haider Mahmood

doi:10.3390/en14113178

Abstract

Economic growth, urbanization, and financial market development (FMD) may increase energy demand in any economy. Non-renewable sources of energy consumption, i.e., oil consumption and natural gas consumption (NGC), could have environmental consequences. We examine the effects of economic growth, urbanization, and FMD on the oil consumption and NGC in Middle East countries using the period 1975–2019. In the panel results, we found a positive effect of income and a negative effect of income-squared on oil and natural gas consumption. Hence, we corroborate the existence of the environmental Kuznets curve (EKC) hypothesis in oil and natural gas consumption models of the Middle East region. Urbanization has a positive effect on oil and natural gas consumption. FMD has a positive effect on oil consumption and has a negative effect on NGC. From the long-run, country-specific results, we validate the existence of the EKC hypothesis in the oil consumption models of Iran and Iraq. The EKC is also found in the natural gas consumption models of Iran, Kuwait, and the UAE. From the short-run results, the EKC hypothesis is validated in the oil consumption models of Iran, Iraq, and Israel. The EKC is also corroborated in the NGC models of Iran, Kuwait, and the UAE. In the long run, urbanization has a positive effect on oil consumption in Iraq, Kuwait, Saudi Arabia, and Qatar. Further, urbanization has a positive effect on the NGC in Iraq, Israel, and Saudi Arabia. Conversely, urbanization has a negative effect on oil consumption in Israel. In the short run, urbanization has a positive effect on oil consumption in Iraq, Israel, Kuwait, and Qatar. Moreover, urbanization has a positive effect on the NGC in Iraq. On the other hand, urbanization has a negative effect on oil consumption in Saudi Arabia and Iran. In the long run, FMD has a positive effect on oil consumption in Saudi Arabia and Israel. In the short run, FMD has a positive effect on oil consumption in Israel, Kuwait, and Saudi Arabia. In contrast, FMD has a negative effect on oil consumption in the UAE. Moreover, a positive effect of FMD on NGC is found in the UAE. However, FMD has a negative effect on the NGC in Israel.

Highlights

Grossman and Krueger [1] originated the environmental Kuznets curve (EKC) hypothesis testing
After employing the panel Autoregressive Distributive Lag (ARDL) technique on the data series from 1993 to 2010, this study provided the absence of the EKC hypothesis in the relationship between Gross Domestic Product (GDP) and emissions
financial market development (FMD) has a positive effect on oil consumption in Israel and Saudi Arabia

Summary

Introduction

Grossman and Krueger [1] originated the environmental Kuznets curve (EKC) hypothesis testing. The EKC explains that pollution may increase with an increase in income due to the scale effect and may decrease later because of technique and composition effects. The EKC has an inverted U-shaped relation in economic growth and pollution. This type of relationship has been confirmed by various studies [2,3,4]. The empirical literature has corroborated the other shape of the relationship. An N-shaped curve asserts a significant increase, fall, and increase in emissions due to increasing economic growth, while the opposite is true for reversed N-shaped curves

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Conclusion