Journal Pre-proof

On the nonlinear relationship between energy use and CO2 emissions

within an EKC framework: Evidence from panel smooth transition
regression in the MENA region

Nidhaleddine Ben Cheikh (Conceptualization) (Methodology)

(Software) (Writing - original draft), Younes Ben Zaied
(Conceptualization) (Methodology) (Software) (Writing - original
draft), Julien Chevallier (Writing - review and editing) (Supervision)
(Project administration)

PII: S0275-5319(20)30938-7
DOI: https://doi.org/10.1016/j.ribaf.2020.101331
Reference: RIBAF 101331

To appear in: Research in International Business and Finance

Received Date: 21 May 2020

Revised Date: 4 August 2020
Accepted Date: 14 September 2020

Please cite this article as: Cheikh NB, Zaied YB, Chevallier J, On the nonlinear relationship
between energy use and CO2 emissions within an EKC framework: Evidence from panel
smooth transition regression in the MENA region, Research in International Business and
Finance (2020), doi: https://doi.org/10.1016/j.ribaf.2020.101331
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On the nonlinear relationship between energy use and CO2 emissions
within an EKC framework: Evidence from panel smooth transition
regression in the MENA region

Nidhaleddine Ben Cheikha, Younes Ben Zaiedb, Julien Chevallierc

a
ESSCA School of Management, 1 Rue Lakanal, 49000 Angers, France
b
EDC Paris Business School, 70 Galerie des Damiers, 92415 Courbevoie, France
c
University of Paris 8, 2 rue de la Liberté, 93526 Saint-Denis, France
& IPAG Paris Business School, Paris, France

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Graphical abstract

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na
ur

LoOn the nonlinear relationship between energy use and CO2 emissions within an EKC framework:
Evidence from panel smooth transition regression in the MENA region on
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⇒ By means of nonlinear panel smooth transition regression (PSTR), the article presents The logistic
quadratic function and the inverted U-shape pattern in CO2 emissions.

Abstract:
This paper proposes a new approach for analyzing the dynamic relationships between carbon
dioxide (CO2) emissions, energy use, and income for the Middle East and North African
(MENA) region. Our study implements a class of regime-switching models, namely a
nonlinear panel smooth transition regression (PSTR) framework. Two kinds of estimates for
carbon emissions are provided. On the one hand, we measure the impact of energy

1
consumption on CO2 concerning the level of income per capita, as countries with a similar
energy usage level would have different levels of energy intensity. On the other hand, we
estimate the impact of output growth on emissions concerning energy usage variation, as a
higher economic growth does not necessarily mean energy-intensive activities. Our empirical
findings support these intuitions as they indicate that pollutant emissions respond nonlinearly
to energy consumption and GDP growth. We find an inverted U-shaped pattern for the impact
of energy on CO2, in the sense that environmental degradation is declining beyond a given
income threshold, which is estimated endogenously within the PSTR model. Also, our results
underscore that GDP growth significantly impacts carbon emissions only for higher energy
consumption growth.

J.E.L classification: C23, Q43, Q53, Q56

Keywords: CO2 emissions; Energy use; Growth; Panel smooth transition regression models

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1. Introduction

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The dynamic linkages among energy consumption, income, and environmental pollution have
been intensively analyzed in energy and ecological economics literature over the past few
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decades. With the increasing threat of global warming, there has been a growing concern
about the worldwide environmental degradation arising mainly from the considerable amount
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of carbon dioxide (CO2) emissions. Significant efforts have been made by academics and
practitioners to understand the reasons for deteriorating environmental quality (Quintero and
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Cohen, 2019). Thorough knowledge of the underlying mechanism behind the mounting
pollutant emissions is essential, as it allows policymakers to gauge the proper responses and
instruments to tackle this issue.
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The relationship between carbon emissions, energy consumption, and economic

growth is a synthesis of the Environmental Kuznets Curve (EKC) and the energy
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consumption-growth nexus strands of literature. Under the EKC hypothesis, there exists an
inverted U-shaped relationship between environmental degradation and income growth. As
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income increases, carbon emissions increase until some "threshold level" (or turning point) of
income is reached, after which emissions begin to decline. The negative impact of increased
output on the environment tends to occur primarily in the early stages of a country’s economic
development. Nevertheless, as the economy grows, its production structure is likely to shift
towards low-polluting activities.

2
 The existing empirical studies have been dominated by the use of standard linear and
quadratic forms to identify the turning point in pollutant emissions. Grossman and Krueger
(1991) are among the first who used the EKC concept in estimating the relationship between
CO2 emission and economic growth. They demonstrated that income per capita might
positively affect CO2 emission in linear form, but its quadratic form hurts CO2 emission,
validating the EKC hypothesis. Following Grossman and Krueger (1991), several papers were
undertaken using different datasets and different pollution indicators to obtain empirical
results which allow testing the EKC assumption (see, e.g., Bimonte and Stabile, 2017; Fosten
et al., 2012; Maddison, 2006; Stern and Common, 2001, to name but a few). However, in a
comprehensive survey of EKC, Dinda (2004) argued that empirical findings are still mixed

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and not conclusive about the validity of the EKC path, and the presence of a turning point
remains controversial.

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The present paper proposes to conduct a novel approach by introducing a nonlinear
regime-switching behavior to the standard empirical EKC model. Doing so, the possible
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existence of a turning point, at which economic development improves environmental quality,
is determined endogenously from the data. Moreover, the existing literature used to measure
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the impact of energy on emissions does not consider the cross-country differences in
economic development. Similarly, the elasticity of CO2 concerning economic growth was
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estimated regardless of changes in energy consumption. Therefore, our study will follow an
empirical approach which enables us to provide two kinds of useful estimates of carbon
emissions.
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On the one hand, we can measure the impact of energy consumption on CO2
concerning the level of income per capita, as countries with similar levels of energy
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consumption would have different levels of energy intensity (defined as the amount of energy
consumption per GDP). Using a nonlinear framework, we can investigate whether
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environmental degradation declines beyond a threshold level of per capita income.

On the other hand, we can gauge the impact of output growth on emissions concerning
the use of energy. As reported by Mehrara (2007), over the period 1971–2002, the increase in
energy consumption has been far more significant than economic growth (on a per capita
basis) in his panel of oil-exporting countries, while the inverse holds for other economies and
regions. Thus, it would be more convenient to test whether the effect of economic growth on

3
environmental quality is dependent on the growth in energy consumption. Our paper
investigates the Middle East and North African (MENA) countries as a region by taking
advantage of the heterogeneity of the sample in terms of the real GDP per capita, with mainly
rich net-oil exporting countries, namely Gulf Cooperation Council (GCC) countries.1

Therefore, our study's goal is to examine the presence of nonlinear relationships between
economic growth, carbon emissions, and energy consumption. Specifically, we go beyond
existing studies that use linear models or introduce quadratic terms when investigating this
relationship. Using annual data spanning the period 1980–2015 for 12 MENA countries, we
implement a nonlinear panel smooth transition regression (PSTR) model developed by

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González et al. (2005). This approach enables us to test for the existence of turning points at
which economic development improves environmental quality in MENA countries. It has
been applied, for instance, by Ben Zaied et al. (2019) in the context of residual water demand.

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The MENA region has been studied recently by Saidi et al. (2019) in a panel cointegration
exercise. Besides, Belaid and Zrelli (2019) studied the case of nine Mediterranean countries to
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show that there is short-term bidirectional causality between GDP, renewable electricity
consumption, and CO2 emissions and between non-renewable electricity consumption, GDP
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and renewable electricity consumption. For Algeria, Belaid, and Youssef (2017) show that, in
the long-run, economic growth and non-renewable electricity consumption have a detrimental
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effect on the environment quality, whereas renewable energy use has a beneficial
environmental effect.
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Due to a great deal of disparity in the level of income per capita across our sample of
countries, the use of PSTR models, which allow for regime-switching behavior, is very
appealing to capture the heterogeneity of pollutant emissions MENA countries. There is no
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such study that uses nonlinear panel data econometric techniques in this context.
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The remainder of this paper is organized as follows. Section 2 outlines the

econometric approach and the final empirical specification. In Section 3, we report the main
results. Section 4 discusses the policy implications of our main findings and concludes.

1
According to the IMF World Economic Outlook Database (2017), Qatar is the world's most prosperous country
in terms of per capita GDP based on purchasing power parity with 129,360 USD. Kuwait is number 7, with 71,929
USD and UAE number 8 with 69,896 USD. While Tunisia is ranked 100 with 12,463 USD, and Morocco is 115
with 8,950 USD.

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2. Empirical approach

2.1. Panel smooth transition modeling

To account for a possible threshold effect in CO2 emissions, we implement a panel

smooth transition regression (PSTR) model proposed by González et al. (2005). In the case of
our paper, the PSTR framework has three main advantages. First, the presence of a threshold
effect is not given a priori but is captured endogenously for the data. Second, the transition
across the identified regimes is rather smooth and gradual, which is more realistic when

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considering the level of development as a transition variable. Third, the transition function
form within PSTR models could be appropriate to fit the inverted U-shaped relationship

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between the level of environmental degradation and income growth. Capturing nonlinearities
and regime-switching makes the PSTR a suitable tool for the study of carbon emissions.

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The general form of the PSTR model, which allows for more than two regimes can be
expressed as follows:
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𝑟
(𝑗)
𝑦𝑖𝑡 = 𝜇𝑖 + 𝛽0′ 𝑥𝑖𝑡 + ∑ 𝛽𝑗′ 𝑥𝑖𝑡 𝑔𝑗 (𝑞𝑖𝑡 ; 𝛾𝑗 , 𝑐𝑗 ) + 𝛼0′ 𝑧𝑖𝑡 + 𝜀𝑖𝑡 , (1)
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𝑗=1

where 𝑖 = 1, … , 𝑁 and 𝑡 = 1, … , 𝑇 denote the country and time dimension of the panel,
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respectively. 𝜇𝑖 is the unobserved individual effect, 𝑟 is the number of transition functions

(𝑗) (𝑗)
𝑔𝑗 (𝑞𝑖𝑡 ; 𝛾𝑗 , 𝑐𝑗 ) defined by the threshold variable 𝑞𝑖𝑡 (for 𝑗 ≤ 𝑟), the corresponding threshold
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𝑐𝑗 and the parameters 𝛾𝑗 determining the smoothness of the transition from one regime to
another. 𝑥𝑖𝑡 is a vector of time-varying explanatory variables, 𝑧𝑖𝑡 a vector of exogenous
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variables with constant coefficients, 𝛼𝑂 , and 𝜀𝑖𝑡 are the residuals.

(𝑗)
The transition function 𝑔𝑗 (𝑞𝑖𝑡 ; 𝛾𝑗 , 𝑐𝑗 ) is continuous, bounded between 0 and 1, and

assumed to be of a logistic type as in González et al. (2005):

5
 (𝑗) 1
𝑔𝑗 (𝑞𝑖𝑡 ; 𝛾𝑗 , 𝑐𝑗 ) = (𝑗)
, with 𝛾𝑗 > 0 and 𝑐1 ≤ 𝑐2 ≤ ⋯ ≤ 𝑐𝑚 (2)
1 + exp [−𝛾𝑗 ∏𝑚
𝑘=1(𝑞𝑖𝑡 − 𝑐𝑗𝑘 )]

where 𝑚 is the number of thresholds 𝑐𝑗1 , 𝑐𝑗2 , ⋯ , 𝑐𝑗𝑚 between the two extreme regimes within
a given transition function 𝑔𝑖 . In the extreme regimes associated with each transition function,
the vectors of parameters take the values 𝛽0 and (𝛽0 + ∑𝑟𝑗=1 𝛽𝑗 ), respectively.

The determination of the number of transition functions, 𝑟, and the number of

thresholds, 𝑚, is crucial as they describe the shape of the transition function, 𝑔𝑖 . As explained
by González et al. (2005), it is sufficient to consider only the cases of 𝑚 = 1 or 𝑚 = 2 as

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these values allow us to capture the nonlinearities due to regime-switching. Note that when
𝑚 = 1, equation (1) and equation (2) jointly correspond to a standard logistic PSTR model.

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For the case when 𝑚 = 2, this refers to a logistic quadratic PSTR specification, where the
shape of the transition function is described by a U-shaped curve – or an inverted U-shaped
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curve depending on the values of 𝛽0′ and 𝛽𝑗′ – with one middle regime and two identical outer
regimes. This latter case of the presence of two thresholds, 𝑚 = 2, would be more suitable to
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test for the possible inverted U-shaped pattern between emissions per capita and real GDP per
capita, in line with the EKC hypothesis.
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The estimation of the PSTR in equation (1) consists of two steps. First, fixed effects
are eliminated by removing individual-specific means. Then, in the second step, parameters
(𝛾𝑗 , 𝑐𝑗 , 𝛽0 , 𝛽𝑗 ) are estimated by Nonlinear Least Squares (NLS).2 Before estimating the PSTR
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model, it is crucial to test whether the regime-switching effect is statistically significant. We

begin to test the null assumption of a linear model against a nonlinear PSTR model, namely
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𝐻0 : 𝑟 = 0 against 𝐻1 : 𝑟 = 1. Then, if the linearity is rejected, we determine the optimal

number of transition functions, 𝑔𝑖 , and the appropriate order of 𝑚 by conducting tests of no
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remaining nonlinearity. Let us consider a simple PSTR model with two extreme regimes and a
single transition function as follows:

2
A critical issue to consider is the selection of starting values of 𝛾𝑗 and 𝑐𝑗 , since this notably determines the
convergence procedure. To select appropriate starting values, a two-dimensional grid search of 50 values of 𝛾𝑗 and
100 values of 𝑐𝑗 is carried out. Given these grids, the vector with the minimum residual sum of squares is used to
estimate the corresponding 𝛽0 and 𝛽𝑗 .

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𝑦𝑖𝑡 = 𝜇𝑖 + 𝛽0′ 𝑥𝑖𝑡 + 𝛽1′ 𝑥𝑖𝑡 𝑔(𝑞𝑖𝑡 ; 𝛾, 𝑐) + 𝜀𝑖𝑡 , (3)

Testing linearity is equivalent to test 𝐻0 : 𝛾 = 0 or 𝐻0 : 𝛽1 = 0. Both tests are

nonstandard because the PSTR model contains unknown nuisance parameters under this null
hypothesis. González et al. (2005) propose to replace 𝑔(𝑞𝑖𝑡 ; 𝛾, 𝑐) by a first-order Taylor
expansion around 𝛾 = 0. After reparameterization, this leads to the following auxiliary
regression:

∗
𝑦𝑖𝑡 = 𝜇𝑖 + 𝛽0′∗ 𝑥𝑖𝑡 + 𝛽1′∗ 𝑥𝑖𝑡 𝑞𝑖𝑡 + ⋯ + 𝛽𝑚
′∗
𝑥𝑖𝑡 𝑞𝑖𝑡 + 𝜀𝑖𝑡∗ , (4)

where the parameters 𝛽0′∗ , ⋯ , 𝛽𝑚

′∗
are proportional to the slope parameter 𝛾 and 𝜀𝑖𝑡∗ = 𝜀𝑖𝑡 +

of
𝑅1 𝛽1′∗ 𝑥𝑖𝑡 , with 𝑅1 is the remainder of the Taylor expansion. Therefore, testing 𝐻0 : 𝛾 = 0 in
equation (3) is equivalent to testing 𝐻0∗ : 𝛽1′∗ = 0 in equation (4). We can use the Wald,

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Fisher, and Likelihood Ratio tests, and their statistics respectively defined are as follows:

𝐿𝑀𝑤 =
𝑇𝑁(𝑆𝑆𝑅0 − 𝑆𝑆𝑅1 )
𝑆𝑆𝑅0
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𝑇𝑁(𝑆𝑆𝑅0 − 𝑆𝑆𝑅1 )/𝑘
𝐿𝑀𝐹 = (6)
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𝑆𝑆𝑅0 /(𝑇𝑁 − 𝑁 − 𝑘)

𝐿𝑅 = −2[log(𝑆𝑆𝑅1 ) − log(𝑆𝑆𝑅0 )] (7)

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where 𝑘 is the number of explanatory variables, 𝑆𝑆𝑅0 is the panel sum of squared residuals
under 𝐻0 (linear panel model with individual effects) and 𝑆𝑆𝑅1 is the panel sum of squared
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residuals under 𝐻1 (i.e., the PSTR, model with two regimes). Under the null hypothesis, the
𝐿𝑀𝑤 and 𝐿𝑅 statistics are distributed as 𝜒 2 (𝑘), and the 𝐿𝑀𝐹 statistic has an approximate
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𝐹(𝑘, 𝑇𝑁 − 𝑁 − 𝑘) distribution. If the null hypothesis is not rejected, we conclude that the
model is linear. If the null is rejected, then we can determine the number of transition
functions, 𝑟, and hence the number of extreme regimes which is equal to 𝑟 + 1. Then, we
proceed to test the null 𝐻0 : 𝑟 = 1 against 𝐻1 : 𝑟 = 2, (the presence of one transition function
versus at least two transition functions). The procedure is then repeated for 𝐻0 : 𝑟 = 𝑖 against
𝐻1 : 𝑟 = 𝑖 + 1, until the null assumption is accepted.

7
2.2. Empirical specification

The standard relationship between income, energy consumption, and environmental pollutants
has been widely estimated through the following reduced-form (variables are in natural
logarithms):

𝑐𝑑𝑖𝑡 = 𝜇𝑖 + 𝛽01 𝑒𝑐𝑖𝑡 + 𝛽02 𝑦𝑖𝑡 + 𝛽03 𝑦𝑖𝑡2 + 𝜀𝑖𝑡 , (8)

where 𝑐𝑑𝑖𝑡 is the carbon dioxide emissions (metric tons per capita), 𝑒𝑐𝑖𝑡 is the energy use (kg
of oil equivalent per capita), and 𝑦𝑖𝑡 is real GDP per capita (constant 2010 U.S. dollars). The
coefficients 𝛽01, 𝛽02 , and 𝛽03 represent the elasticity estimates of CO2 emissions concerning

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energy consumption, real GDP per capita, and squared real GDP per capita, respectively. It is
expected that an increase in energy use leads to an increase in CO2 emissions (𝛽01 > 0). In

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line with the EKC assumption, there is an inverted U-shaped relationship between the level of
environmental degradation and income growth. For the early stages of economic
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development, carbon emissions increase with real GDP per capita until a turning point of
income is reached, after which environmental degradation begins to decline. Thus, the
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elasticity estimates of CO2 emissions with respect to real GDP per capita and the square of per
capita real GDP per capita are expected to be positive (𝛽02 > 0) and negative (𝛽03 < 0),
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respectively.

To infer the existence of a threshold effect in the estimates of CO2 emissions

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concerning GDP per capita, our study proposes to implement a nonlinear framework. We
modify the standard model (7) by substituting the quadratic term, 𝑦𝑖𝑡2 , with a logistic transition
(𝑗)
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function 𝑔𝑖 (𝑞𝑖𝑡 ; 𝛾𝑗 , 𝑐𝑗 ). As discussed above, with the presence of two thresholds (𝑚 = 2), 𝑔𝑖

refers to a logistic quadratic function, where the shape of transition function can be described
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by a U-shaped or an inverted U-shaped curve. This would be appropriate to model the

possible inverted U-shaped pattern between emissions per capita and real GDP per capita, in
line with the EKC hypothesis. Therefore, combining the standard approach with the PSTR
model (for the case of 𝑟 = 1), our model can be written as follows:

𝑐𝑑𝑖𝑡 = 𝜇𝑖 + 𝛽01 𝑒𝑐𝑖𝑡 + 𝛽02 𝑦𝑖𝑡 + [𝛽11 𝑒𝑐𝑖𝑡 + 𝛽12 𝑦𝑖𝑡 ] × 𝑔(𝑞𝑖𝑡 ; 𝛾, 𝑐) + 𝜀𝑖𝑡 , (9)

8
 We allow for elasticities of CO2 emissions, for energy consumption and GDP per
capita, to change nonlinearly depending on the value of the transition function, 𝑔(𝑞𝑖𝑡 ; 𝛾, 𝑐). In
our paper, we consider two transition variables, 𝑞𝑖𝑡 , which may entail a nonlinear dynamic in
carbon dioxide emissions: the level of income proxied by real GDP per capita, 𝑦𝑖𝑡 , and the
magnitude of energy consumption changes, Δ𝑒𝑐𝑖𝑡 .

Besides, to account for the presence of long-run dynamics, the cointegrating

relationship is estimated, and the error correction term is included in our nonlinear
specification. The cointegration vector is obtained using the panel DOLS estimators (Mark
and Sul, 2003).3 The advantage of DOLS estimators is to take into account potential

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endogeneities among the variables. The method consists of augmenting the cointegrating
regression with lead and lagged values of differences of the regressors to alleviate a possible

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endogenous feedback effect. Results from cointegration analysis are not reported here to save
space but available from the authors upon request.4 Therefore, our final nonlinear PSTR
specification, which includes an error correction term, can be rewritten as follows:

∆𝑐𝑑𝑖𝑡 = 𝜇𝑖 + 𝛽01 ∆𝑒𝑐𝑖𝑡 + 𝛽02 ∆𝑦𝑖𝑡 + 𝜃𝑧𝑖,𝑡−1

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(𝑗)
+[𝛽11 ∆𝑒𝑐𝑖𝑡 + 𝛽12 ∆𝑦𝑖𝑡 ] × 𝑔𝑗 (𝑞𝑖𝑡 ; 𝛾𝑗 , 𝑐𝑗 ) + 𝜀𝑖𝑡 , (10)
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with 𝑞𝑖𝑡 = (𝑦𝑖𝑡 , Δ𝑒𝑐𝑖𝑡 )

where the lagged residuals of the cointegrating vector 𝑧𝑖,𝑡−1 are included to account for the
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long-term dynamics of carbon dioxide emissions. As series are converted into natural
logarithms, then our variables can be interpreted in growth terms after taking the first
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difference.
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2.3. Data

3
Long-run elasticities can also be estimated via the fully modified OLS (FM-OLS). As discussed in panel
cointegration literature, the DOLS procedure presents a lower size distortion than the FM-OLS method.
4
There is a myriad of empirical works that have studied the long-run cointegrating relationship between emissions,
energy, and growth (see e.g., Arouri et al., 2012; Apergis and Payne, 2010; Ben Zaied et al., 2017; among others).
Our study goes beyond the existing literature by proposing a different approach to capture the presence of a turning
point or nonlinear dynamic in the environmental degradation mechanism.

9
Our nonlinear panel data model is estimated over the annual period of 1980–2015 and for 12
MENA countries: Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar,
Saudi Arabia, Tunisia, and United Arab Emirates (UAE). Data used here are from the
International Energy Agency (IEA) Statistics, the Carbon Dioxide Information Analysis
Center (CDIAC), World Bank national accounts data, and OECD National Accounts data.
The summary statistics associated with our key variables are available in Table A1 in
Appendix A.

3. Empirical results

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3.1. Linearity tests

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Before estimating the PSTR, it is essential to test whether the regime-switching effect is
statistically significant using linearity tests. If linearity is rejected, then we must determine the
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number of transition functions by checking for no remaining nonlinearity. In Table 1, the
results of linearity tests are shown for 𝑚 = 1 and 𝑚 = 2. For each threshold variable,
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linearity tests are conducted for 𝑚 = 1 and 𝑚 = 2, constraining to 𝑟𝑚𝑎𝑥 = 3 and 𝑟𝑚𝑎𝑥 = 2,
respectively. We have discriminated between logistic (𝑚 = 1) and logistic quadratic (𝑚 = 2)
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panel smooth transition functions according to two criteria: we selected first those with the
lowest 𝑝-value in the linear test. We then picked the one that exhibited the lowest Akaike
(AIC) and Schwarz information criterion (BIC).
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When the level of income is considered as the transition variable, 𝑞𝑖𝑡 = 𝑦𝑖𝑡 , Table 1
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shows that the null of linearity is rejected for all three tests and with a different number of
location parameters (𝑚 = 1,2), implying that the relationship between emissions and level of
income in the MENA region is indeed nonlinear. Similarly, when considering the variation in
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energy consumption as a transition variable, 𝑞𝑖𝑡 = Δ𝑒𝑐𝑖𝑡 , the linearity hypothesis is firmly
rejected against the nonlinear PSTR model, which confirms that carbon emissions could be
affected by changes in energy use in a nonlinear way. Once the null of linearity is rejected,
then we can determine the number of transition functions, 𝑟, and hence the number of extreme
regimes. As displayed in Table 1, the null 𝐻0 : 𝑟 = 1 cannot be rejected, implying the presence
of one transition function. Also, concerning the number of thresholds in the logistic transition,

10
𝑚, the logistic quadratic transition function (𝑚 = 2) is more appropriate for both cases,
according to AIC and BIC criteria.

As a next step, the nonlinear PSTR models are estimated using NLS as in González et
al. (2005). As discussed above, two different specifications are tested in our paper. In the first
one, we estimate the impact of energy consumption on CO2 concerning the level of income,
by considering the real GDP per capita as the transition variable, 𝑞𝑖𝑡 = 𝑦𝑖𝑡 . In the second one,
we measure the impact of income per capita growth on carbon emissions concerning the
variation in energy use, by taking the magnitude of energy consumption changes, 𝑞𝑖𝑡 = Δ𝑒𝑐𝑖𝑡 .

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3.2. The impact of energy use on CO2 emissions concerning income level

By the linearity tests, the nonlinear effect of energy on CO2 emissions concerning the level of

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real GDP per capita is obtained by estimating the following nonlinear PSTR model:

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∆𝑐𝑑𝑖𝑡 = 𝜇𝑖 + 𝛽01 ∆𝑒𝑐𝑖𝑡 + 𝛽02 ∆𝑦𝑖𝑡 + 𝜃𝑧𝑖,𝑡−1 + 𝛽11 ∆𝑒𝑐𝑖𝑡 × 𝑔(𝑦𝑖𝑡 ; 𝛾, 𝑐1 , 𝑐2 ) + 𝜀𝑖𝑡 , (11)
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with 𝑔(𝑦𝑖𝑡 ; 𝛾, 𝑐1 , 𝑐2 ) = [1 + exp(−𝛾 (𝑦𝑖𝑡 − 𝑐1 )(𝑦𝑖𝑡 − 𝑐2 ))]−1
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Table 2 shows the corresponding parameter estimates of the PSTR model specified in
equation (11), together with standard errors between parentheses.5 Also, as recommended by
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González et al. (2005), the estimated model is subjected to misspecification tests to check
whether it provides an adequate description of the data. In addition to no remaining
nonlinearity tests performed in Table 1, we apply a Lagrange Multiplier (L.M.) test of
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parameter constancy as a diagnostic check. As shown in Table 2, our estimated PSTR model
passes the diagnostic test as the null of the hypothesis of parameter constancy cannot be
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rejected. We also compute the sum of squared residuals ratio (𝑆𝑆𝑅𝑟𝑎𝑡𝑖𝑜 ) between the linear
panel fixed-effect model and the PSTR specification, which suggests a better fit for the
nonlinear PSTR model.

5
For a robustness check, we have re-estimated in equation (11) by allowing the logistic quadratic function to
interact with both energy and income. Our results are still robust, the estimated parameters are quite similar to
those reported in Table 2. Estimates are not reported here to save space but available from the authors upon request.

11
 Next, Table 2 displays the estimated slope parameter and threshold values,
(𝛾̂; 𝑐̂1 ; 𝑐̂2 ) = (8.361; 7.81; 9.45). The estimated transition parameter 𝛾 is relatively small,
implying that the impact of energy consumption on emissions concerning the level of income
per capita is rather smooth. This result is very appealing and more realistic as changes in
production structure take time. For example, there is a gradual shift from an agricultural-based
economy towards an energy-intensive, manufacturing-based economy. Similarly, shifting
from a high-polluting manufacturing sector-based system to a technology-intensive, low-
polluting service economy requires a period of economic transition. According to the
estimated threshold values, three different levels of GDP per capita regime could be
identified: A “low-income” regime with real GDP per capita lower than 2,470.71 USD (7.81
in logarithms); a “high-income” regime when the level of real GDP per capita exceeds

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12,755.56 USD (9.45 in logarithms); and an intermediate “middle-income” regime with a

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level of income per capita between 2,470.71 and 12,755.56 USD. The impact of energy on
CO2 emissions is calculated through the following varying coefficient:

𝛿Δ𝑐𝑑𝑖𝑡
𝛿Δ𝑒𝑐𝑖𝑡
= 𝛽01 + 𝛽11 × 𝑔(𝑦𝑖𝑡 ; 𝛾, 𝑐1 , 𝑐2 )
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According to the logistic quadratic PSTR specification, those observations for which
the income level is between the two threshold values will be characterized by the estimated
coefficient 𝛽01. This corresponds to the elasticity of carbon emissions concerning energy use
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for a middle-income regime. The two extreme regimes, i.e., low- and high-income regimes,
are identical in terms of estimated coefficient where the elasticity of carbon emissions is equal
to (𝛽01 + 𝛽11 ).
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According to the estimated elasticities in Table 2, energy consumption has positive

impacts on CO2 emissions in line with expectations. However, these effects are significantly
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different between the middle-regime and the outer regimes. For the low-income regime, a 1%
increase in energy usage per capita leads to a rise in emissions per capita by roughly 0.268%.
This impact becomes more critical as per capita income increases and reaches the middle-
income regime, with the elasticity of emissions per capita becoming 0.584%. However, for
the high-income regime, i.e., beyond the income threshold of 12,755.56 USD, the energy
effect on pollutant emissions is less significant, returning to its earlier elasticity of 0.268%.

12
 The relationship between carbon emissions and energy usage appears to follow an
inverted U-shaped pattern concerning income per capita. The level of environmental pollution
tends to increase with income until it reaches its stabilization point, then declines.
Our results are supportive of the EKC assumption in the sense that the impact of
energy consumption on environmental degradation is dependent on economic development.
During the early stages of economic growth, ecological degradation increases until some
threshold level of income are reached, after which emissions begin to decline. Beyond a
threshold level, the demand for environmental quality increases in wealthy nations, leading to
lower environmental degradation levels.

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 For illustrative purposes, we plot the estimated logistic quadratic functions and the
impact of energy on CO2 emissions depending on the levels of income. The elasticity of
carbon emission is derived from equation (12) for all the possible values taken by real GDP
per capita as a transition variable. As displayed in Figure 1, the presence of an inverted U-
shaped curve is confirmed by the plots. The association between energy consumption and
pollutant follows a nonlinear pattern with a transition from one state to another being gradual.
For low-income countries, such as Egypt, Morocco, and Tunisia, as output per capita
increases, the impact of energy on the environment is harmful with a higher degree of
emissions. For example, as we can visualize from Figure 1, carbon emissions are rising for

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Morocco and Egypt in 2005 and 2009, respectively, as they are shifting gradually from low-
to middle-income regimes. For many years, energy-intensive manufacturing production has
migrated from richer countries to middle income and poorer countries, which have less

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restrictive environmental protection laws. Rich countries are outsourcing their requirements
for pollution-intensive products from less developed economies where higher exportation
tends to boost their economic growth.6
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For oil-exporting countries, namely the GCC group, it is interesting to see that higher
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income gives rise to decreasing pollutant emissions (as in Saudi Arabia in 2002). Despite the
well-known over-consumption of energy-intensive products in the region due to generous
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energy subsidies, environmental quality is improving. As the economy grows, their

production structure may be likely to shift towards less energy-intensive activities and a more
service-based economy. In recent years, the major GCC stock markets have been engaged in
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several structural reforms to diversify their economies and reduce their dependence on oil
revenues. It is possible that current efforts and policies, such as gradually cutting energy
subsidies, are starting to bear fruit.
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Moreover, the income levels in the remaining MENA countries (excluding the GCC
group) are below the second threshold of 12,755.56 USD (𝑐̂2 = 9.45). As reported in Figure
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2, they have not yet reached the high-income regime where environmental degradation is
declining. In contrast to less developed economies, it is expected that wealthy nations can
more easily afford environmental protection investments and bear the expense of shifting to
clean and green energy.

6
See e.g., Dietzenbacher et al. (2012) for the relationship between China’s carbon emissions and exports.

14
3.3. The impact of income growth on CO2 emissions concerning energy use growth

Now we examine the impact of output growth on carbon emissions. We think that countries
with a similar GDP growth rate will have different pollutant emissions depending on the
increase in energy consumption. As asserted above in our descriptive analysis, energy use
growth has been more important than GDP growth throughout our sample of MENA countries
(except for Morocco). Given that the gap between energy-output growth varies across our
sample, we explore the potential nonlinear impact of GDP growth on emissions concerning
variation in energy usage (∆𝑒𝑐𝑖𝑡 ).

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Based on the linearity tests in Table 1, a PSTR model with a logistic quadratic
transition function, comprising two threshold levels (𝑚 = 2) has a better fit. Then, to obtain
carbon emissions elasticities, equation (10) can be rewritten as follows:

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∆𝑐𝑑𝑖𝑡 = 𝜇𝑖 + 𝛽01 ∆𝑒𝑐𝑖𝑡 + 𝛽02 ∆𝑦𝑖𝑡 + 𝜃𝑧𝑖,𝑡−1 + 𝛽12 ∆𝑦𝑖𝑡 × 𝑔(∆𝑒𝑐𝑖𝑡 ; 𝛾, 𝑐1 , 𝑐2 ) + 𝜀𝑖𝑡 , (13)

with
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𝑔(∆𝑒𝑐𝑖𝑡 ; 𝛾, 𝑐1 , 𝑐2 ) = [1 + exp(−𝛾 (∆𝑒𝑐𝑖𝑡 − 𝑐1 )(∆𝑒𝑐𝑖𝑡 − 𝑐2 ))]−1
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The estimated parameters from equation (13) are presented in Table 3. Concerning the
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estimated threshold values (𝑐̂1 ; 𝑐̂2 ) = (−0.076; 0.014), as our transition variable, ∆𝑒𝑐𝑖𝑡 , is
defined in growth terms (first logarithmic difference), mainly two regimes can be identified:
the first one is called the “low-energy changes” regime, if the variation in energy consumption
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is between -7.6% and 1.4%; the second one corresponds to the extreme regimes, i.e., where
energy use decreases by over 7.6% (𝑐̂1 = −0.076) or increases more than 1.4% (𝑐̂2 =
0.014). Due to the quadratic form of our logistic function, the two outer regimes are identical
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in terms of the dynamic of energy variation. They will then correspond to the “high-energy”
changes regime. Regarding the slope parameter (𝛾̂ = 2532.46), it is clear that the transition
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between states is rather sharp. This is not surprising as changes in energy consumption are
much larger and more common than output changes. Also, it is noteworthy that MENA
countries are susceptible to regional political events. Episodes of geopolitical tensions, such
as the Arab Spring since late 2010 or the recent diplomatic crisis in the GCC region, are, in
general, accompanied by higher volatility in the energy market.

15
 The nonlinear impact of output growth on CO2 emissions concerning energy use
changes is calculated through the following varying coefficient:

𝛿Δ𝑐𝑑𝑖𝑡
= 𝛽02 + 𝛽12 × 𝑔(∆𝑒𝑐𝑖𝑡 ; 𝛾, 𝑐1 , 𝑐2 ) (14)
𝛿Δ𝑒𝑐𝑖𝑡

Concerning the above-identified regimes, the carbon emissions elasticity in the low-
energy changes regime corresponds to 𝛽02 , while for the high-energy changes regime, the
impact of GDP growth is equal to (𝛽02 + 𝛽12 ). The estimated coefficients presented in Table
3 indicate that the effect of economic growth on pollution differs substantially across the
regimes. This pattern is confirmed in Figure 3, where the income elasticity of CO2 emission is

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plotted against changes in energy usage. According to Table 3, it is interesting to see that the
carbon emissions elasticity is weak and not significant when changes in energy consumption

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are small. When the income per capita growth increases by 1%, emissions rise by only 0.06%,
which is statistically insignificant. The result is intriguing as higher economic growth does not
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necessarily mean an increase in energy-intensive activities and higher pollution emissions.
Economic growth based on less energy-intensive activities, mainly information-intensive
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industries and services, would reduce environmental degradation.
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However, within the high-energy changes regime, it is clear that per capita GDP
growth has a higher negative impact on the environment. A 1% increase in output growth
generates an increase of 1.01% in per capita CO2 emissions, which is statistically significant
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at the 1% significance level. The income elasticity of carbon emissions is equal to unity,
implying that economic growth raises emissions by the same amount when the increase in
energy consumption is higher. The results assert that economic development/growth based on
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energy-intensive industries is harmful to the environment. The growth in energy consumption

is a crucial determinant of CO2 emissions. Economic growth could be compatible with
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environmental improvement, especially when the sectoral structure of the economy shifts
from energy-intensive industry towards services and knowledge-based technology-intensive
activities.

4. Conclusion and policy implications

16
The purpose of this paper was to conduct a new approach to investigate the dynamic
relationships between carbon emissions, energy consumption, and income for the MENA
region over the period 1980–2015. The existing empirical literature measured the impact of
energy on emissions without considering the cross-country differences in economic
development. However, countries with a similar level of energy consumption would have
different levels of energy intensity (defined as the amount of energy usage per GDP).
Similarly, in previous works, the elasticity of CO2 concerning economic growth was
estimated regardless of the changes in energy consumption. In contrast, countries with a
similar GDP growth rate would have different levels of pollutant emissions depending on the
growth in energy consumption.

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Our study proposes implementing a nonlinear panel smooth transition regression
(PSTR) framework, which enables us to provide two kinds of useful estimates of carbon

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emissions. On the one hand, taking advantage of our MENA sample's heterogeneity in terms
of the real GDP per capita, we measure the impact of energy consumption on CO2 concerning
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the level of income. On the other hand, we estimate the effect of output growth on emissions
concerning energy usage variation, as a higher economic growth does not necessarily mean
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energy-intensive activities.
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Our empirical findings gave support to the above intuitions as they indicate that
pollutant emissions respond nonlinearly to energy consumption and GDP growth. We find an
inverted U-shaped pattern in the impact of energy on CO2, in the sense that environmental
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degradation declines beyond a given income threshold, which is estimated endogenously

within the PSTR model. Our results support the EKC assumption in the sense that the impact
of energy consumption on environmental degradation is dependent on economic development.
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During the early stages of economic growth, ecological degradation increases until some
threshold level of income are reached, after which emissions begin to decline. Beyond a
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threshold level, the demand for environmental quality increases in wealthy nations, leading to
lower environmental degradation levels. Moreover, wealthy nations can more easily bear the
cost of shifting to low-polluting production, like an investment in renewable energy and
replacement of dirty and obsolete technologies.

Furthermore, our results underscore that GDP growth significantly impacts carbon
emissions only for higher energy use increases. The income elasticity of carbon emissions is

17
equal to unity, implying that economic growth raises emissions by the same amount when the
rise in energy consumption is higher. The results demonstrate that economic
development/growth based on energy-intensive industries is harmful to the environment.
However, when energy consumption growth is small, the carbon emissions elasticity is weak
and not significant. This result is very appealing as a higher economic growth does not
necessarily mean higher pollution emissions. Economic growth based on less energy-intensive
activities, mainly information-intensive industries and services, would not negatively impact
environmental quality.

Our study suggests that shifting towards less energy-intensive activities, such as

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information-intensive industries and services, coupled with crucial environmental protection
investments, would improve environmental quality. Although MENA countries have different
economic profiles in terms of energy use and income levels, they have initiated a set of

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actions in recent years intended to reduce environmental degradation. Energy conservation
policies, such as phasing out energy subsidies, and environmental protection investments,
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such as the development of renewable energies, are among current tools and initiatives for
environmental protection. For the case of net-oil exporting countries in our sample, namely
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GCC countries, several structural reforms have been made to diversify their economies and
reduce their dependence on oil revenues. In light of our empirical results, energy subsidies
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reform is feasible with no damaging economic growth effects. A sustainable development

path based on less energy-intensive activities and a more service-based economy would be
beneficial to alleviate environmental pressure. Moreover, wealthy nations, such as the GCC
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group, can more easily afford environmental protection investments and bear the expense of
shifting to clean and green energy.
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For low-income countries in the MENA region, such as Egypt, Morocco, and Tunisia,
more restrictive environmental protection laws are required as dirty industries tend to migrate
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to their economies through international trade. More stringent environmental standards and
stricter enforcement of their environmental laws should aim to mitigate CO2 emissions.
Besides, the demand for environmental quality should increase as people in these countries
attach increasing value to democracy following the recent Arab Spring (see Barrett and
Graddy, 2000, for the relationship between freedom and environment). With a higher degree
of freedom, citizens can acquire information about the quality of their environment, and they

18
may increase the pressure for environmental protection and regulations to reduce
environmental degradation.

CRediT author statement

• Nidhaleddine Ben Cheikh : Conceptualization ; Methodology, Software ; Writing – Original
Draft
• Younes Ben Zaied : Conceptualization ; Methodology, Software ; Writing - Original Draft
• Julien Chevallier : Writing - Review & Editing ; Supervision ; Project administration

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Figure 1. The logistic quadratic function and the inverted U-shape pattern in CO2 emissions

1 0.6

Algeria in 2011 0.55

0.8
Lebanon in 2010
0.5

0.6
Egypt in 2009 0.45

Morocco in 2005
Oman in 1983 0.4
0.4

Saudi Arabia in 2002 0.35

0.2

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UAE in 2010 Qatar in 2013 0.3

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0 0.25
1200 4800 19200 76800
Logistic quadratic function (left scale) Energy use impact (right scale)

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Note: x-axis: GDP per capita; y-axis: Logistic quadratic function on the left scale and the impact of energy
consumption on CO2 emission on the right scale.
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Figure 2. GDP per capita in MENA countries and threshold levels in CO2 emissions
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20000
18000
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16000
14000
12000
10000
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8000
6000
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4000
2000
0
Algeria Egypt, Arab Jordan Lebanon Morocco Oman Tunisia
Rep.

Mean Max. Min. Threshold 1 Threshold 2

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Note: Threshold 1 corresponds to the first estimated GDP per capita threshold value 𝑐̂1 , and Threshold 2
corresponds to the second estimated GDP per capita threshold value 𝑐̂2 , both obtained from equation (11). For a
convenient visualization of low- and middle-income countries, GCC countries (except Oman) are not reported.

Figure 3. The logistic quadratic function and the impact of income growth on CO2 emissions

1.00 1.14

1.00
0.80
0.86

0.72
0.60

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0.58

0.40

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0.44

0.30
0.20

0.00
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0.02
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-0.30 -0.20 -0.10 0.00 0.10 0.20 0.30 0.40 0.50 0.60

Logistic quadratic function (left scale) Income impact (right scale)

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Note: x-axis: Energy use change; y-axis: Logistic quadratic function on the left scale and the effect of income
growth on CO2 emission on the right scale.
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Table 1. Linearity and no remaining nonlinearity
(1) (2)
Threshold variables (𝒒𝒊𝒕 ) GDP per capita (𝒚𝒊𝒕 ) Energy use change (∆𝒆𝒄𝒊𝒕 )
Number of thresholds (𝒎) 𝑚=1 𝑚=2 𝑚=1 𝑚=2
𝑯𝟎 : 𝒓 = 𝟎 vs 𝑯𝟏 : 𝒓 = 𝟏:
𝑳𝑴𝑾 4.609 3.880 6.829 8.502
(0.099) (0.048) (0.032) (0.036)
𝑳𝑴𝑭 2.489 2.905 2.748 2.284
(0.085) (0.089) (0.065) (0.079)
𝑳𝑹 6.792 3.963 6.898 8.610

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(0.085) (0.046) (0.031) (0.034)
𝑯𝟎 : 𝒓 = 𝟏 vs 𝑯𝟏 : 𝒓 = 𝟐:

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𝑳𝑴𝑾 0.486 1.900 2.636 4.735
(0.485) (0.593) (0.451) (0.578)
𝑳𝑴𝑭 0.372
(0.542)
0.475
(0.699)
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(0.570)
0.599
(0.730)
𝑳𝑹 0.486 1.907 2.648 4.772
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(0.485) (0.591) (0.449) (0.573)
AIC -4.702 -4.720 -4.405 -4.491
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BIC -4.615 -4.634 -4.338 -4.420

Note: Linearity tests are conducted using 𝐿𝑀𝑤 , 𝐿𝑀𝐹 , and 𝐿𝑅 tests. For each model, we test for 𝐻0 : 𝑟 = 𝑖 against
𝐻1 : 𝑟 = 𝑖 + 1 for 𝑚 = 1 and 𝑚 = 2 until the null assumption is accepted at least for the 10% significance level
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(numbers in bold). Under 𝐻0 , the 𝐿𝑀𝑤 and 𝐿𝑅 statistics are distributed as a 𝜒 2 (𝑘), whereas the 𝐿𝑀𝐹 statistic has
an approximate 𝐹(𝑘, 𝑇𝑁 − 𝑁 − 𝑘) distribution. Numbers in parentheses are 𝑝-values. AIC and BIC are Akaike
and Schwarz information criterion used to discriminate between logistic transition function (𝑚 = 1) and logistic
quadratic transition function (𝑚 = 2).
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Table 2. PSTR model estimation with transition variable: GDP per capita

∆𝑐𝑑𝑖𝑡 = 𝜇𝑖 + 0.584∗∗∗ ∆𝑒𝑐𝑖𝑡 + 0,355∗ ∆𝑦𝑖𝑡 −0.272∗∗∗ 𝑧𝑖,𝑡−1

(0.124) (0.227) (0.064)

−0.316∗∗ ∆𝑒𝑐𝑖𝑡 × 𝑔(𝑞𝑖𝑡 ; 𝛾̂, 𝑐̂1 , 𝑐̂2 ) + 𝜀𝑖𝑡 ,

(0.157)

−1
with 𝑔(𝑞𝑖𝑡 ; 𝛾̂, 𝑐̂1 , 𝑐̂2 ) = [1 + exp (−8.361 (𝑦𝑖𝑡 − 7.812∗∗∗ )(𝑦𝑖𝑡 − 9.453∗∗∗ ))]
(5.968) (2.101) (2.286)

𝑁𝑇 = 720; 𝑅2 = 0.451; 𝑆𝑆𝑅𝑟𝑎𝑡𝑖𝑜 = 0.683; 𝑝𝐿𝑀 𝐶𝐹 = 0.259; 𝑝𝐿𝑀 𝑁

𝐹 = 0.699

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CO2 emissions elasticities

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Low-income regime Middle-income regime High-income regime
Energy impact 0.268∗∗ 0.584∗∗∗ 0.268∗∗
(0.097) -p
(0.124) (0.097)

Note: In this table, the estimation results of the PSTR equation (11) are reported using NLS. The numbers in
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parentheses are standard deviations. ***, **, and * denote 1%, 5%, and 10% significance levels, respectively. 𝑅2
denotes the coefficient of determination and 𝑆𝑆𝑅ratio is the ratio of the sum of squared residuals between the
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PSTR model and the linear specification. Also, misspecification tests are conducted using the 𝐹-version of the
LM-type test: 𝑝𝐿𝑀 𝐶𝐹 is the 𝑝-value of the L.M. test of parameter constancy and 𝑝𝐿𝑀 𝑁
𝐹 is the 𝑝-value of the

L.M. test of no remaining nonlinearity.

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Table 3. PSTR model estimation with transition variable: Energy use variation

∆𝑐𝑑𝑖𝑡 = 𝜇𝑖 + 0.425∗∗∗ ∆𝑒𝑐𝑖𝑡 + 0.059∆𝑦𝑖𝑡 −0.308∗∗∗ 𝑧𝑖.𝑡−1

(0.090) (0.065) (0.047)

+0.953∗∗ ∆𝑦𝑖𝑡 × 𝑔(𝑞𝑖𝑡 ; 𝛾̂. 𝑐̂1 . 𝑐̂2 ) + 𝜀𝑖𝑡 .

(0.370)

with 𝑔(𝑞𝑖𝑡 ; 𝛾̂. 𝑐̂1 . 𝑐̂2 ) = [1 + exp (−2532.46 (∆𝑒𝑐𝑖𝑡 − (−0.076)∗∗∗ )(∆𝑒𝑐𝑖𝑡 −
(1747.62) (0.005)
−1
∗∗∗
0.014 ))]
(0.003)

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𝑁𝑇 = 720; 𝑅2 = 0.523; 𝑆𝑆𝑅𝑟𝑎𝑡𝑖𝑜 = 0.652; 𝑝𝐿𝑀 𝐶𝐹 = 0.654; 𝑝𝐿𝑀 𝑁
𝐹 = 0.730

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CO2 emissions elasticities

Low-energy changes regime High-energy changes regime

Income impact 0.059
(0.065)
-p 1.013∗∗∗
(0.364)

Note: In this table, the estimation results of the PSTR equation (13) are reported using Nonlinear Least Squares
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(NLS). The numbers in parentheses are standard deviations. ***, **, and * denote 1%, 5%, and 10% significance
levels, respectively. 𝑅2 denotes the coefficient of determination, and 𝑆𝑆𝑅ratio is the ratio of the sum of squared
residuals between the PSTR model and the linear specification. Also, misspecification tests are conducted using
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the 𝐹-version of the LM-type test: 𝑝𝐿𝑀 𝐶𝐹 is the 𝑝-value of the L.M. test of parameter constancy, and 𝑝𝐿𝑀 𝑁
𝐹 is

the 𝑝-value of the L.M. test of no remaining nonlinearity.

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 Appendix A.

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Table A1. Summary Statistics of key variables over 1980–2015
CO2 emissions (metric tons per capita) Energy use (kg of oil equivalent per capita) GDP per capita (constant 2010 U.S. dollar)

pr
Country
Mean Max. Min. S.D. Mean (%) Mean Max. Min. S.D. Mean (%) Mean Max. Min. S.D. Mean (%)
Algeria 3.09 3.72 1.91 0.37 2.11% 913.65 1321.10 579.45 166.11 2.49% 3834.37 4675.89 3164.90 452.49 0.70%

e-
Bahrain 24.18 29.99 19.65 2.77 0.59% 10594.28 12406.71 7794.79 1144.08 0.68% 20579.38 22955.09 16571.43 1973.69 0.25%
Egypt 1.75 2.53 1.03 0.47 2.50% 634.92 896.79 342.30 161.11 2.74% 1861.05 2608.38 1192.58 452.25 2.49%
Jordan 2.99 3.69 1.99 0.33 2.00% 949.95 1168.40 641.13 104.79 1.75% 3075.65 3786.53 2357.23 401.27 0.85%

Pr
Kuwait 24.39 34.04 5.01 7.15 -0.94% 9013.46 11544.16 1322.23 2064.04 2.00% 40927.75 49588.76 35051.80 4697.95 -0.51%
Lebanon 3.88 5.35 2.32 0.91 2.13% 1201.15 1710.08 678.58 326.23 1.97% 6757.50 8858.28 3376.71 1179.57 1.79%
Morocco 1.21 1.88 0.77 0.35 2.27% 386.37 560.11 264.76 101.26 2.10% 2043.95 3113.80 1293.50 547.27 2.53%
Oman 9.56 17.08 4.45 4.30 2.95% 3386.97 6832.83 802.92 1926.99 7.64% 16370.60 19408.63 9907.34 2423.22 1.69%
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Qatar 48.69 70.14 24.71 12.84 -0.09% 17069.83 21959.44 13698.29 2176.81 1.07% 65858.58 72670.96 60460.42 3923.20 0.87%
Saudi Arabia 15.17 19.53 10.45 2.50 1.50% 4821.56 6937.23 3192.87 1034.56 3.43% 19894.70 36518.05 15608.75 4386.77 -1.20%
Tunisia 1.96 2.60 1.41 0.36 1.86% 710.89 966.33 492.70 153.49 2.02% 2900.53 4265.15 2014.57 787.47 2.31%
UAE 27.03 35.89 15.42 5.56 0.27% 9728.16 12087.10 6938.02 1603.06 1.15% 62003.56 113682.04 35049.15 19099.89 -2.43%
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TOTAL 13.66 70.14 0.77 14.79 1.43% 4950.93 21959.44 264.76 5429.83 2.00% 20508.97 113682.04 1192.58 23321.17 0.78%
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Source: Data were obtained from International Energy Agency (IEA) Statistics, the Carbon Dioxide Information Analysis Center (CDIAC), World Bank national accounts
data, and OECD National Accounts data. Notes: Max., Min., and S.D. are maximum, minimum, and standard deviation, respectively. Mean (%) is the average annual
percentage changes in carbon emissions, per capita GDP, and energy use. The data period is 1980 –2015.

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Appendix B.

Table B1. Panel unit root tests (Pesaran, 2007)

Level First difference
Variables
Intercept Intercept & trend Intercept Intercept & trend
CO2 emissions -0.704 -0.130 -4.136 -2.251
(0.241) (0.448) (0.000) (0.012)
Energy use 0.113 1.630 -4.579 -4.331
(0.545) (0.948) (0.000) (0.000)
Real GDP per capita -1.447 0.599 -1.762 -3.065
(0.074) (0.725) (0.039) (0.001)

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Note: 𝑝-values for the null hypothesis of non-stationarity are reported between parentheses. The empirical
statistics can also be compared to the critical value from Pesaran (2007), which is -2.19 for specification with an

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intercept and -2.86 for specification with intercept and linear time trend at 5% level. Individual lag lengths are
based on Akaike Information Criteria (AIC).

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Table B2. Error-correction based panel cointegration test (Westerlund, 2007)
Without trend With trend
Statistics
Value 𝑝-value Robust 𝑝-value Value 𝑝-value Robust 𝑝-value
Group-mean statistics
𝐺𝜏 -3.612 0.000 0.000 -3.474 0.000 0.000

𝐺𝛼 -15.453 0.001 0.010 -12.632 0.047 0.000

Panel statistics
𝑃𝜏 -9.398 0.000 0.010 -8.635 0.000 0.010

𝑃𝛼 -9.490 0.026 0.030

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-12.356 0.000 0.000
Note: 𝐺𝜏 and 𝐺𝛼 are group mean statistics that test the null of no cointegration for the whole panel against the
alternative of cointegration for some countries in the panel. 𝑃𝜏 and 𝑃𝛼 are the panel statistics that test the null of

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no cointegration against the alternative of cointegration for the panel as a whole. Optimal lag and lead lengths
are determined by the Akaike Information Criterion (AIC). In the last column, we present the bootstrapped 𝑝-
-p
values, which are robust against cross-sectional dependencies. The robust 𝑝-values are computed using 800
bootstraps.
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