Environmental Kuznets Curve in an Open Economy: A Bounds Testing and Causality Analysis for Tunisia

The aim of this paper is to investigate the existence of environmental Kuznets curve (EKC) in an open economy like Tunisia using annual time series data for the period of 1971-2010. The ARDL bounds testing approach to cointegration is applied to test long run relationship in the presence of structural breaks and vector error correction model (VECM) to detect the causality among the variables. The robustness of causality analysis has been tested by applying the innovative accounting approach (IAA). The findings of this paper confirmed the long run relationship between economic growth, energy consumption, trade openness and CO2 emissions in Tunisian Economy. The results also indicated the existence of EKC confirmed by the VECM and IAA approaches. The study has significant contribution for policy implications to curtail energy pollutants by implementing environment friendly regulations to sustain the economic development in Tunisia.