The impact of energy consumption and economic development on Ecological Footprint and CO2 emissions: Evidence from a Markov Switching Equilibrium Correction Model

Abstract

Reducing the impact of air pollution and global environmental degradation on human health and quality of life for Qatari citizens represents the most important objective of the Qatar National vision 2030. With respect to this vision, this study investigates the effects of economic growth, energy consumption, trade openness, urbanization and financial development on environmental degradation by using the Markov Switching Equilibrium Correction Model with shifts in both the intercept and income per capita slope for the period 1970-2015. Unlike existing studies and in addition to the CO2 emissions pollutant, this paper uses the total Ecological Footprint and Ecological Carbon Footprint as new proxies of environmental degradation. Empirical results show strong evidence for cointegration with Markov shifts. In particular, our results show that the non-control for breaks can hide the true relationship among variables. The results show also that when controlling for breaks the Environment Kuznets curve (EKC) hypothesis holds for the CO2 emissions and Ecological carbon Footprint pollutants and the U-shaped behavior holds for the total Ecological Footprint. Moreover, the results show that these two behaviors (EKC and U-shaped) are regime dependent. Regarding the other explanatory variables, the results show that trade openness and urbanization worsen Ecological Footprint. However, the electricity consumption and financial development are positively related to the Ecological Footprint and negatively related to Ecological Carbon Footprint and CO2 emissions. Finally, we found evidence for the growth hypothesis for both pollutants. Based on these results, a detailed economic, energy and environmental policy is proposed and discussed for the case of Qatar.