Transportation fuel subsidies and CO 2 emissions: The roles of economic complexity and uncertainty

Abstract

Transportation fuel subsidies have been rising in several developing countries. In order to broaden our understanding of transportation fuel subsidies, many attempts have been made in the literature to investigate the impact of the transportation fuel subsidies. This is mostly because exposing the various negative effects of transportation fuel subsidies might stimulating the appropriate authorities to act against the growing transportation fuel subsidies. However, the impact of transportation fuel subsidies on pollution has not been adequately examined in the literature. This study investigates the determinants of environmental degradation with a focus on the role of transportation fuel subsidies in selected developing countries. The control variables considered in this study include economic complexity and uncertainty, which have not been sufficiently examined in the existing literature. Pollution from transport sector is used as an indicator of environmental degradation. The study adopts a dynamic panel data method, which offers more reliable results relative to analyses done via conventional methods. The empirical findings suggest that an increase in transportation fuel subsidies generate a rise in transportation sector CO2 emissions. Specifically, a 1% rise in transportation fuel subsidies per capita will increase the transport sector CO2 emissions by between 0.041% and 0.094%. The results further illustrate that an increase in population, real gross domestic product per capita or uncertainty raises environmental degradation, while a rise in economic complexity reduces environmental degradation. It is observed that the impact of transport oil subsidies per capita is less pronounced in countries with higher per capita income.