The effects of economic growth, energy consumption and financial development on CO2 emissions in Tunisia: ARDL bounds testing approach to cointegration

Abstract

This study aims to investigate the impacts of economic growth, energy consumption, and financial development on carbon emissions within the framework of the environmental Kuznets curve hypothesis for Tunisa from 1970 to 2018. The long-run relationship is examined by applying the autoregressive distributed lag (ARDL) bounds testing procedure to cointegration and error correction analysis. The empirical findings show a positive monotonic relationship between real GDP and carbon dioxide emissions (CO2), which means that Tunisia has not yet reached the required level of per capita income to get an inverted U-shaped EKC. The results also reveal a positive impact on both the energy consumption and the financial development, suggesting that theses control variables lead to environmental damages by polluting the atmosphere in the long run. At the same time, the paper explores causal links between the variables by referring to the Toda and Yamamoto (1995) Causality Test, and it concludes that financial development and energy consumption play a vital role in the Tunisian economy to achieve sustainable environmental development. Therefore, policy makers should not only focus on economic development, but also undertake a solid green finance regulation to assume an active environmentally friendly processes, and the energy matrix should be transformed in favor of renewable energy to cope with environmental degradation and to ensure sustainable development in Tunisia.