The causality link between energy electricity consumption, CO2 emissions, R&D stocks and economic growth in Mediterranean countries (MCs)

Abstract

This study examined the four-way linkages between electricity consumption, CO2 emissions, R&D stocks and economic growth for the MCs over the 1990–2016 periods, by implementing several estimators: SUR, 3SLS and GMM. The specification of these econometric techniques is that the four sets of equations (electricity, CO2, R&D and growth models) are estimated jointly through the system of equations. These techniques make it possible to estimate all the parameters of the models at the same time and solve the problem of endogeneity. Under conditional homoskedasticity, GMM reduces to 3SLS if the set of instrumental variables is common to all equations. If we further assume that all the regressors are predetermined, then 3SLS reduces to SUR. Empirical results confirm the existence of strong feedback effects between electricity, CO2 emissions, R&D stocks and economic growth (especially in SUR estimator). However, the results support the occurrence of unidirectional causality between electricity and R&D stocks (in 3SLS) while the other relationships exist. On the one hand, here is unidirectional causality among R&D stocks and economic growth as well as unidirectional causality between R&D stocks and CO2 emissions, on the other hand (GMM estimator). The study consolidates the policy insights to control the environment from degradation by using energy-efficient technologies. It is important for policymakers in formulating a conclusive, economic, energy and environmental policies to meet the bourgeoning energy demand in MCs. They should concentrate on allocating funds to adopt environmentally friendly technologies and encourage using more energy-efficient technologies for production purposes and thus preserving the environment from degradation.