Economic Complexity and Renewable Energy Effects on Carbon Dioxide Emissions: a Panel Data Analysis of Middle East and North Africa Countries

Abstract

AbstractWith the rising economic complexity of the world economy, applied research has been focusing on the economic complexity-environmental quality nexus. Many of the Middle East and North Africa (MENA) countries and Turkey show relatively low economic complexity with undiversified product spaces. The present study is thereby motivated to investigate the economic complexity-environmental quality relation for the MENA countries and Turkey. Using panel data for eighteen MENA countries and Turkey over the period 1990–2020, the fully modified ordinary least squares method of estimation is employed in two separate models, and Granger causality tests are performed. Each model includes the relation of economic complexity to carbon dioxide (CO2) emissions, one form of energy (renewable or non-renewable), population density and variables to validate the environmental Kuznets curve (EKC) hypothesis. In model (1), a negative and statistically significant renewable energy consumption has a mitigating effect on CO2 emissions, though economic complexity and its interaction with renewable energy consumption are not statistically significant. In model (2), a positive and statistically significant non-renewable energy indicates that increased fossil fuel reliance increases CO2 emissions (deteriorating environmental quality), while a negative and statistically significant economic complexity and population density reduce CO2 emissions (improving environmental quality), respectively. The EKC hypothesis is validated for the MENA countries and Turkey in both models (1) and (2), and Granger causality test results are given. Among the key policy implications are that the MENA countries and Turkey must recognize that increasing GDP and industrialization must be coupled with moving from less- to more-knowledge-based structures.