Economic Growth and CO2 Emissions in Croatia: An ARDL-Based Assessment of the EKC Hypothesis

This paper examines the long-run relationship between economic growth and CO2 emissions in Croatia over the period 1990–2023 using the ARDL bounds testing approach. The analysis aims to assess the presence of an Environmental Kuznets Curve (EKC) and to shed light on Croatia’s position along the growth–emissions trajectory, an issue that has remained inconclusive in earlier studies. The results provide evidence of an inverted U-shaped relationship between the GDP per capita and CO2 emissions, consistent with the EKC hypothesis. The estimates of marginal effects suggest that the impact of income on emissions weakens and may eventually turn negative at higher income levels, although the precise income level at which this transition occurs is sensitive to model specification and sample composition. Energy consumption emerges as the strongest long-run driver of emissions, while a higher share of renewable energy contributes significantly to their reduction. Institutional quality is found to be positively associated with emissions in the long run, reflecting growth-enhancing effects during the post-transition period rather than immediate environmental improvements. The contribution of this study lies in the use of a longer time span and a dynamic empirical framework that allows for a more nuanced assessment of the growth–emissions relationship in Croatia. Overall, the findings point to a gradual decoupling of economic growth from carbon emissions while highlighting that the sustainability of this trajectory depends critically on continued progress in the energy transition and on the alignment of institutional development with climate and energy objectives.