The Linkage between Economic Growth, Renewable Energy, Tourism, CO2 Emissions, and International Trade: The Evidence for the European Union

Abstract

This paper evaluates the link between economic growth, renewable energy, tourism arrivals, trade openness, and carbon dioxide emissions in the European Union (EU-28). As an econometric strategy, the research uses panel data. In the first step, we apply the unit root test, and the results demonstrated that the variables used in this study are integrated I (1) in the first difference. In the second step, we apply the Pedroni cointegration test, and Kao Residual cointegration test, and we observe that the variables are cointegrated in the long run. The panel fully modified least squares (FMOLS), panel dynamic least squares (DOLS), and generalized moments system (GMM-System) estimator are considered in this research. The econometric results proved that trade openness and renewable energy decreased climate change and environmental degradation. The empirical study also found a positive effect of economic growth on carbon dioxide emissions. Moreover, tourism arrivals are negatively correlated with carbon dioxide emissions, showing sustainability practices of the tourism sector on the environment. Furthermore, carbon dioxide emissions in the long run present a positive impact, indicating that climate change increases. In this study, we also consider the recent methodology of Dumitrescu–Hurlin to observe the causality and the relationship between renewable energy, trade openness, economic growth, tourism arrivals, and carbon dioxide emissions.

Testing the Role of Trade on Carbon Dioxide Emissions in Portugal

“…In this case, we observe improvements in environmental quality and pollution. According to the recent literature of Balsalobre-Lorente et al (2021), Pata and Caglar (2021), Leitão and Lorente (2020), Ike et al (2020), and Koengkan et al (2020), in the short run, there is a positive impact of income per capita on CO 2 emissions (GDP > 0); however, we expect a negative effect of income per capita (GDP < 0) on carbon dioxide emissions in the long run.…”

“…The authors defend that trade liberalization is based on trade agreements and environmental rules to decrease greenhouse gas emissions. The previous studies of Leitão and Lorente (2020), Zhang et al (2019), Roy (2017), and Leitão and Balogh (2020) found a negative correlation between trade intensity and carbon dioxide emissions (TRADE < 0); according to the literature, trade intensity promotes sustainability development.…”

“…The empirical studies use panel data more frequently for testing the impact of trade intensity or the intra-industry trade on the environment. There are some studies such as Leitão and Lorente (2020), Roy (2017), and Leitão and Balogh (2020) that consider that liberalization of trade encourages a reduction in environmental damage. These studies found a negative impact of trade intensity or the intra-industry trade on carbon dioxide emissions.…”

“…The link between economic growth and the environmental Kuznets curve (EKC) was introduced by Grossman and Krueger (1995) and Holtz-Eakin and Selden (1995), who demonstrated that economic growth is directly correlated with climate change and greenhouse gas emissions (Leitão and Lorente 2020;Ike et al 2020;Sarkodie and Ozturk 2020;Koengkan et al 2020). In the short run, the empirical research considers a positive correlation between economic growth and carbon dioxide emissions, showing that economic activities encourage environmental damage.…”

“…We observe that the empirical studies as Gessesse and He (2020), Sarkodie and Ozturk (2020), Shahbaz et al (2021), Burakov (2019), and Özokcu and Özdemir (2017) use time series (autoregressive distributed lag-ARDL model, vector error correction model-VECM, and Granger causality). Moreover, there exist other studies such as Leitão and Lorente (2020), Ike et al (2020), and Koengkan et al (2020) that applied panel data (fixed effects-FE, random effects-RE, FMOLS-fully modified ordinary least squares, DOLS-dynamic ordinary least squares, GMM-system estimator, and method of moments quantile regression).…”