Academic journal article International Review of Management and Business Research

The Validity of Environmental Kuznets Curve Hypotheis in the Kingdom of Saudi Arabia: ARDL Bounds Testing Approach to Cointegration

Academic journal article International Review of Management and Business Research

The Validity of Environmental Kuznets Curve Hypotheis in the Kingdom of Saudi Arabia: ARDL Bounds Testing Approach to Cointegration

Article excerpt

(ProQuest: ... denotes formulae omitted.)

Introduction

Every economy wants to achieve a high level of sustainable economic development to improve the well-being of its population. As defined in economic Jargon, sustainable economic development should take into consideration the ecological sustainability. However, as Himani (2010) provided, economic development concentrates on GDP growth and ignoring the associated environmental costs and consequences of sustainable development (in Lingaraj and Shakti, 2015).

The kingdom of Saudi Arabia has been since 1970 pursuing five-year-development plans with the aim of diversifying its economy and reducing dependence on oil revenues. Despite the limited successes in achieving these long-term objectives, there are two recent considerable developments: first, growth of non- oil sector despite the recent fall in oil prices since 2014 has picked up independently from the oil sector. Second, there is growing awareness of the importance of achieving economic development but not at the expense of the environment. These two developments fit well with the newly announced 2030 Vision, which is a roadmap for the kingdom's economic future and hence may succeed in re-enforcing these welcomed developments.

The challenges facing the country remain in having an economic diversification that benefits from greenhouse gas emission avoidances and adaptation to the impacts of climate change, as well as reducing the negative impacts of environmental policies on economic growth. The objective of economic diversification is necessary for sustainability of economic growth and development and increasing the share of non-oil sectors such as industries, energy, mining and tourism. On the other hand, this objective must be met with a reduction in the CO2 level especially as KSA has agreed to Paris climate agreement in 2015, which demands limiting warming to below 2C degree. Hence, the critical question is whether Saudi Arabia is capable of meeting its environmental obligations without compromising its economic objectives.

The Intended National Determined Contribution (INDC), which was submitted in 2015 to the United Nations Framework Convention on climate change (UNFCC), presented the official position. This official document foresees that integrating climate change objectives and economic diversification will mitigate co-benefits and contribute to economic diversification through a set of measures among them are energy efficiency, renewable energies, and Carbon Capture and storage. The implementation of such plan will be challenging for KSA, but the new economic direction included the establishment of the Council of Economic and Development Affairs, which put forth a very ambitious "2030 Vision" with the aim of tackling these challenges especially as government revenues from oil have dropped considerably. Stevens (2015) noted the fast changes in attitudes and considerable efforts by the Saudi government in implementing these policies towards reducing pollution despite apparent negative impacts to its economy. The inverted U-shaped relationship between per capita income and income inequality Mehmet et al., (2016) cited is dated back to the study of Kuznets (1955). Based on (Kuzents, 1955), hypothesis where the relationship between economic development and environmental degradation, as Grossman and Krueger (1991) argue that the inverted U-shaped relationship is also exists between per capita income and environmental degradation. The bottom line of the hypothesis is that the inverted U-shaped relationship between per capita income growth and environmental degradation suggests that as per capita income increases, environmental degradation also increases to maximum point but then decreases and the turning point is the critical high level of income (Lingaraj and Shakti, 2015).

The focus of the present paper is to investigate empirically the validity of Environmental Kuznets Curve hypothesis, which is the effect of income on CO2 emissions, in KSA. …

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