Sustainable Development through Carbon Neutrality A Policy Insight from Foreign Direct Investment and Service Policy

Abstract

The present study borders on testing the United Arab Emirates’ (UAE) economic and environmental performance to suggest achievable ways of reducing carbon emissions, which will assist in curbing global warming. UAE 1980-2018 annual data is employed in this present study. Structural break tests, autoregressive distributed lag (ARDL)-bound testing and Granger causality (GC) were utilized in this study for a detailed and in-depth scientific analysis. The following findings are made: from the linear ARDL regression, economic growth (gross domestic product (GDP)) has a positive relationship with CO2 both in the short and long run, portraying poor environmental performance. Also, a positive relationship is initiated between foreign direct investments (FDI) and CO2 emissions in both the short and long run, which means that, as the foreign direct investment increases, the emissions thereby cause damage to the environmental performance of the UAE. Again, a positive relationship is exposed between energy use and CO2 emission at a 1% significant level. Moreover, a negative relationship between service and CO2 emission is not significant. This means that as the performance of the service sector increases, CO2 emissions decrease, which positively impacts the environment’s quality. The findings from the GC perspective are as follows: in the short run, a uni-directional causal inference is established between CO2 and energy use, FDI and energy use, and FDI and service. Bi-directional causal inference is observed between FDI and GDP. Moreover, in the long run, a uni-directional causal transmission is established between CO2 and other variables (i.e. FDI and service) except GDP. Also, a uni-directional causal transmission is observed between energy use and other variables (i.e. FDI and service) except GDP. Bi-directional causal transmission is observed between CO2 and energy use. We can deduce the nexus between FDI, energy use, GDP, service, and CO2 in determining the UAE’s economic and environmental performance. There is a synergy between the findings from ARDL-bound tests, linear approach, and GC in confirmation of the impact of the selected variables on the dependent variable (CO2 emission), which fall into the author’s expectations.