Nexus among Energy Use, CO2 Emanations, and Financial Growth: Evidence from the GCC Countries

Abstract

Proper utilization of natural resources as a form of energy is a critically important part of enhancing and prospering the economy of any country or a strategic region. Oil is considered as the only major resource used for energy generation for the region of the Gulf Cooperation Council (GCC) (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates-UAE). However, the emission of CO2 during the generation of energy from oil affects the environment always. This study investigates the nexus between energy consumption for economic growth (considering GDP) as well as the impact of this emission in the form of CO2 on the GCC region. The panel model has been employed from the year 2001 to 2014 to examine the causal association in the long-run and short-run among the concerned factors. Panel Unit Root Test, several cointegration tests like Pedroni Residual Cointegration Test, Kao Residual Cointegration Test, and Granger Causality Test have been implemented to observe the association among the factors for recommending better policy to gain economic prosperity in this region. The study shows strong cointegration at a 1% level of significance among the variables. Furthermore, a long-run relationship has been detected between energy usages to GDP and CO2 emission among the GCC countries. Furthermore, the CUSUM and CUSUMSQ tests are also performed to ensure the stability of the concern factors of this study. Finally, all possible policies are recommended to sustain and enhance the economic development of the GCC countries.