FDI, exports, imports, and consumption-based CO2 emissions in the MENA region: spatial analysis

Abstract

MENA region is full of natural resources and has a huge mineral sector in their economies. CO₂ emissions are increasing global warming and foreign trade and investments can play their roles in determining CO₂ emissions in the resource-rich MENA countries. Moreover, spatial linkages are expected in the emissions and trade relationship, which could catch less attention in the environmental literature of the MENA region. Thus, the present research is motivated to capture the contributions of exports, imports, and Foreign Direct Investments (FDI) in consumption-based CO₂ (CBC) emissions in twelve MENA economies from 1995 to 2020 by applying Spatial Autoregressive (SAR) Model. Our results exhibit the existence of the Environmental Kuznets Curve (EKC). Moreover, the impact of exports is found negative in direct and total estimates. Thus, exports of the MENA region are reducing CBC emissions in the MENA region and transferring emissions to their importing partners. Moreover, the spillovers of exports are found positive and exports of one MENA country are also responsible for the transfer of CBC emissions to other MENA neighboring countries, which corroborates the trade linkages of the MENA region. Imports have a positive effect on CBC emissions in direct and total effects. This result confirms the fact of energy-intensive imports of the MENA region, which have environmental consequences in the domestic economies and the whole MENA region. FDI increases CBC emissions in direct and total estimates. This result substantiates the pollution Haven hypothesis in the MENA region and is in line with the fact that FDI is mostly coming in the mineral, construction, and chemical sectors. The study suggests that MENA countries should promote exports to reduce CBC emissions and to reduce energy-intensive imports in the region to save the environment from CBC emissions. Moreover, FDI should be attracted to the clean production process and environmental standards should be raised to avoid the environmental problems of FDI in the MENA region.

Keywords: Consumption-based CO2 emissions; Economic growth; Exports; Foreign direct investment; Imports; Spillovers.