Assessing the linkage between energy consumption, financial development, tourism and environment: evidence from method of moments quantile regression

Abstract

According to the United Nations World Tourism Organization (UNWTO), tourism sector ranks high in terms of her contribution to economic growth and employment opportunity generation in most economies. Several studies have been documented in the extant literature on the nexus between emission, tourism, and economic growth. However, the role of foreign direct investment that highlights either pollution haven or halo hypothesis and pivotal role of domestic credit to private sector in an environmental Kuznets curve (EKC) environment is lacking in the extant literature. To this end, this study used augmented mean group (AMG) and method of moment quantile regression (MM-QR) approaches to explore the nexus between per capital income and its square, tourism, foreign direct investment, domestic credit to private sector and CO₂ emission. Empirical results show that tourism had a negative significant relationship with CO₂ emission. Furthermore, income on the other hand had positive relationship with emissions while its square had negative relationship with emissions. This result also shows the presence of EKC indicating the inverted U-shaped curve. FDI has shown a positive significant relationship with pollution which indicates the pollutant haven hypothesis (PHH), and credit to private sector shows a positive relationship with CO₂ emission. On the causality analysis from Dumitrescu and Hurlin panel causality test, there was a bi-directional causality between: tourism and CO₂ emission, per capital income and CO₂ emission as well as domestic credit and CO₂ emission. From these outcomes, it shows that tourism development is not detrimental to environmental quality in the Mediterranean region investigated. However, there is need for caution on FDI influx and dirty economic activities that might compromise environmental quality in the study bloc.

Keywords: Carbon reduction; Green tourism; Mediterranean countries; Panel econometrics; Sustainability; Sustainable development.