Exploring the Economy – Environment Interactions in the Western Balkans

Abstract

In order to balance economic growth with environmental preservation, the implementation of sustainable policies is necessary. As such, it is imperative to have a comprehensive understanding of the intricate relationship between the economy and the environment. This study examines the relationship between CO2 emissions and GDP per capita in five WB countries during 1960-2018, using a methodological framework that includes panel unit root testing, cointegration testing, and a Vector Error Correction Model. The study provides robust evidence of a long-term cointegration between CO2 emissions and GDP per capita. Furthermore, the study also reveals a short-run bidirectional causal relationship between CO2 emissions and GDP per capita. In the long run, no statistically significant causality exists from GDP per capita to CO2 emissions, but it is statistically significant from CO2 emissions to GDP per capita. These findings offer valuable insights for policymakers to develop comprehensive policies that promote economic growth and environmental sustainability, such as investing in clean energy, implementing stronger environmental regulations, and encouraging environmentally sound management practices.