Exports, imports, Foreign Direct Investment and CO2 emissions in North Africa: Spatial analysis

Developing countries depend on international trade and Foreign Direct Investment (FDI) to support their economies. However, these activities should not be to the extent, that their adverse environmental effects get ignored. The present study aims at exploring the impact of income, trade, energy consumption, and FDI on CO2 emissions in five North African countries from 1990 to 2014.​ The analysis also probes the Environmental Kuznets Curve (EKC) hypothesis, considering spatial dependency in the model. We find a significant spatial dependency in the model and validate the presence of the EKC hypothesis as well. All investigated countries are found in the first phase of EKC, which explains the negative environmental consequences of economic growth. Further, we establish evidence of the negative effect of exports on CO2 emissions while their spillover effects on the neighboring countries are found positive. The effects of imports and total trade openness are found positive on local economies, and their spillovers are negative. FDI is not found to be affecting CO2 emissions. We recommend the North African countries to keep the environmental consequences of energy consumption, economic growth, and imports in check while formulating energy, trade, and public policies.