CO2 Emissions, Economic Growth, and Energy Use in the Middle East Countries : A Panel VAR Approach

The article explores the nexus between carbon dioxide emissions, economic growth, and energy use for 10 Middle East countries over the period 1971–2006. We use a panel VAR technique for the empirical analysis. The three-variable VAR estimate shows that for the six GCC countries the response of economic growth to CO2 emissions is negative in the estimated coefficients and impulse responses. CO2 emissions seem to be driven both by its own past values and by energy use. For the other four non-GCC countries, the result of our particular interest is the response of real GDP: neither CO2 emissions nor energy use seems to have an impact on growth, which is determined by its own lagged values. While the errors in predicting the energy use are sensitive to disturbances in the energy use equation. Thus, for GCC countries, our results suggest that the “growth hypothesis” holds. For the remaining four non-GCC countries we found that forecast errors in energy use are mainly due to energy use itself; while the forecast errors in economic growth should be essentially connected to real GDP itself. Thus, these findings represent an empirical support for the “neutrality hypothesis.”