Tracing the path: testing the environmental Kuznets Curve in Algeria using ARDL bounds testing

Abstract

This study aims to test hypothesis of Environmental Kuznets Curve (EKC) in Algeria using the Autoregressive Distributed Lag (ARDL) bounds testing methodology. The objectives include examining the long-term relationship between economic growth and CO2 emissions, investigating the impact of structural breaks on this relationship’s stability, and offering policy recommendations informed by the findings. The research utilizes annual data related CO2 emissions and GDP per capita from 1962 to 2014 in Algeria. The data are analyzed through the ARDL bounds test to ascertain the existence of a long-term equilibrium relationship. The study incorporates structural breaks to account for potential changes in the economic-environmental relationship over time. The findings confirm the presence of an EKC pattern in Algeria, showing a reverse U-shaped nexus between economic growth and CO2 emissions. The Inclusion of structural breaks in the analysis led to the stability of the model compared to the case of their absence that led to a variability in the model coefficients. Thus, it provides a more accurate and reliable understanding of this relationship. The threshold at which economic growth starts to decrease CO2 emissions, is identified at a GDP per capita of approximately $4125.58 (constant 2010 $), which Algeria reached in 2005. Furthermore, if disequilibrium between CO2 emissions and economic growth is occurred due to a possible short-term shock, the return toward the steady state requires three years approximately. While the results validate the EKC hypothesis for Algeria, the paper is limited to the period from 1962 to 2014 and may not capture more recent economic and environmental changes. Furthermore, the study aims to enrich the EKC literature in Algeria, which is characterized by scarcity, by using the recent ARDL bounds test methodology and addressing basic assumptions that were violated in previous studies. This study highlights the importance of considering structural breaks in environmental- economic analyses to avoid biased estimations and incorrect policy recommendations. Future research should explore additional determinants of CO2 emissions, such as biofuel use, advanced technologies, environmental awareness, urbanization, foreign direct investment, and employment. Policymakers should promote clean energy and sustainable economic practices to ensure continued environmental improvements alongside economic growth.

Keywords

• environmental kuznets curve
• co2 emissions
• cointegration; ardl bounds test
• structural changes