The Arab Monetary Fund publishes an economic study about: “The GDP–CO2 Emissions Nexus in Arab Countries”

The study analysed the relationship between real GDP per capita, renewable energy consumption, energy prices, and CO2 emissions in Arab countries using the Environmental Kuznets Curve (EKC) framework. 

The findings showed a non-linear relationship between real GDP per capita and CO2 emissions. As the GDP rises, CO2 emissions increase to a certain income turning point, after which further GDP growth reduces CO2 emissions, which is in line with the EKC hypothesis.

Increased renewable energy consumption decreases CO2 emissions, indicating that increasing the use of renewable energy sources reduces emissions in Arab countries.

Higher energy prices also significantly affected CO2 emissions, especially in middle- and low-income countries. These results are less evident in high-income countries due to the small share of energy consumption of the total consumer basket.

The study indicated the importance of economic reforms to eliminate energy subsidies, increase investment in renewable energies, such as solar and wind energy, and investment in green technologies to help reduce CO2 emissions. 

Within the efforts made by the Arab Monetary Fund on studies and research activities to support economic institutions in Arab countries on issues of climate change and the relationship between the economy and the environment, the Fund published a study on "The GDP-CO2 Emissions Nexus in Arab Countries". The study aims to shed light on the relationship between economic activities and carbon dioxide emissions. The study analyses the relationship between countries' economic and environmental performance for the period from 1990 to 2020. 

In this regard, the results of the econometric analysis indicated that, in the long run, the real GDP per capita had a significant and positive effect on carbon dioxide emissions. Nonetheless, the GDP squared was not statistically significant. The results also failed to provide evidence of the environmental Kuznets curve hypothesis's validity for the entire study sample. In the early stages of economic growth, the Kuznets curve hypothesis predicts that there will be a positive relationship between output and environmental deterioration. However, once output reaches a certain level, this relationship will reverse, helping to reduce emissions and attain environmental quality.

In contrast, the results supported the environmental Kuznets curve hypothesis once we spread the sample into two groups; high- and low-income countries. The analysis of high-income countries revealed that GDP contributed to an increase in CO2 emissions below the turning point ($58,151 for high-income countries, $9,685 for low-income countries) and aided in their reduction above this income threshold. In addition, the results demonstrated an inverse relationship between renewable energy consumption and carbon dioxide emissions. Moreover, the results revealed an inverse correlation between energy price fluctuations and carbon dioxide emissions in Arab countries. 

Given the study's findings, authorities in Arab countries are advised to develop strategies to increase the reliance on renewable energies, implementing reforms to energy subsidy policies, and reducing fossil energy use. It is also vital to stimulate environmentally friendly manufacturing methods, as well as to develop green finance mechanisms and invest in technology that helps minimise greenhouse gas emissions.


The full version of the study is available in English at the following link: