Asymmetric Relationship between Carbon Dioxide Emissions, Energy use and Economic Growth in Saudi Arabia

Abstract

The Kingdom of Saudi Arabia has a dominant energy intensive oil sector. Coupled with high energy consumption rates the country is a major carbon dioxide (CO₂) emitter. The study aims to estimate the impact of positive and negative changes in energy use and Gross Domestic Product (GDP) per capita on CO₂ emissions. The study uses two time periods. The first is from 1971-2014 and the other is from 1971-2018. While the actual data is available only for the period until 2014, the extended period data is obtained by forecasting using Autoregressive Integrated Moving Average (ARIMA) method. This extended period is important, as during this period there was a fall in international crude oil prices; revision of domestic energy prices; and the country introduced a structural transformation program. As the data is integrated at different orders, the study uses asymmetric Autoregressive Distributive Lag (NARDL) method. The study finds a cointegrating relationship between the variables but the relationship between CO₂ emissions and energy is different for the two time periods. For the period 1971-2014, only positive shock had a significant relation while for the period 1971-2018 only negative shock has a significant impact on CO₂ emissions. This could be probably due to the recent revisions in domestic prices. More importantly, the study finds an asymmetric relationship between CO₂ emissions and GDP per capita for both the time periods. A positive change in per capita GDP leads to a greater impact on CO₂ emissions than a negative change in per capita GDP. This study is one of the very few researches that study the relationship between CO₂ emissions, energy and GDP per capita for Saudi Arabia. The incorporation of the period 2014-2018 in an asymmetric framework is a novelty of this study.