Economic development and environmental sustainability: evidence from Bahrain

Abstract

While the concept of environmental Kuznets curve (EKC), which links economic growth to environmental degradation, is well demonstrated, there is disagreement on its shape, extent and determinants. This study investigates the EKC hypothesis in Bahrain and assesses the impact of electricity consumption, foreign direct investment and financial development on CO₂ emissions using time series data over the period 1980–2014. To accomplish this target, the autoregressive distributed lag bounds testing approach is employed, and the results show that the series are cointegrated. Moreover, there is an inverted U-shaped long-run relationship between CO₂ emissions and economic growth, confirming the existence of EKC for Bahrain. In other words, economic growth in Bahrain raises the level of environmental emissions until it reaches a specific threshold of per capita income and then starts to decline. In addition, while more electricity consumption continues to contribute to increasing the level of CO₂ emissions, having more foreign direct investments improves the quality of air in Bahrain. Based on these findings, Bahrain should reduce emissions through expanding CO₂ recovery plants projects and invest more in energy research to achieve efficient electricity generation.

Keywords

CO₂ emissions / FDI / Electricity consumption / Financial development / EKC / ARDL bound testing

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