Environmental Impact of Urbanization, Bank Credits, and Energy Use in the UAE—A Tourism-Induced EKC Model

Abstract

The United Arab Emirates (UAE) has developed rapidly into one of the highest per capita income nations globally. The travel and tourism sector is a central contributor to the Gross Domestic Product (GDP), employment, foreign exchange earnings, and the country’s economic diversification strategy. However, the rapid growth of the sector and increase in international tourist arrivals are also major contributors to carbon emissions and long-term environmental challenges. In this context, we employed a tourism-induced Environmental Kuznets Curve (EKC) model for the UAE from 1984 to 2019. The study applied an Autoregressive Distributed Lag (ARDL) model to determine the marginal impact of tourist arrivals and related variables, namely, bank credits to the private sector, urbanization, and energy use, on CO2 emissions. The Pesaran bounds test indicated redundancy of short run estimates. The long-run coefficients confirmed the EKC hypothesis of inverted U-shape for carbon emissions and per capita income, along with environmental degradation due to tourist arrivals and financial development. Notably, urbanization and energy use highlighted the positive steps taken by the government. Granger causality tests indicated a unidirectional association from GDP, bank credits, and energy consumption to carbon emissions. Importantly, tourist arrivals and urbanization had bidirectional causality with carbon dioxide levels. This study is the first to apply the tourism-induced EKC model to the UAE, and the findings have important implications for policymakers and practitioners. The causality results highlight the need to balance tourism targets and sustainable economic growth through the adoption of ‘green’ standards. The results also indicate the potential importance of financial sector efforts to boost green investments and implement clean energy-related technologies.