The nexus of carbon dioxide emissions, economic growth, and urbanization in Saudi Arabia

Abstract

Saudi Arabia has implemented its ambitious and comprehensive national strategy, i.e., Saudi Vision 2030, to achieve major economic, social, and environmental objectives. The main aim of this paper is to study the Granger causality relationships between economic growth, environmental degradation, and urbanization in Saudi Arabia over the period from 1985 to 2019. At first, Augmented Dicky-Fuller (ADF) and Phillips-Perron (PP) tests were applied in order to check the stationarity of the panel time-series data. Since the data were of mixed order of integration I(0) and I(1), the Autoregressive Distributed Lag (ARDL) framework was employed to perform the statistical analysis. Then, the short- and long-run relationships were evaluated using the bounds test for cointegration applied on the Error Correction Models (ECMs) for GDP, CO2 emissions, and urbanization as the dependent variables. Furthermore, the direction and significance of causality were estimated in the ARDL/ECM framework. In addition, the Environmental Kuznets Curve (EKC) hypothesis was examined for the sample data. To assess the generalization capability of the findings in this study, robustness and diagnostic tests were applied. In the long-run, the empirical findings indicate that 1% increase in economic growth Granger caused 0.15% increase in CO2 emissions and 0.006% decrease in urbanization. Whereas 1% increase in urbanization Granger caused 2.5% increase in the economic growth. In the short-run, a unidirectional causal relationship existed from economic growth to both CO2 emissions and urbanization with 1% increase in GDP Granger caused 0.3% and 0.004% increases in CO2 emissions and urbanization, respectively. Finally, policy recommendations were presented in light of the Saudi Vision 2030.