THE JOURNAL OF ENERGY AND DEVELOPMENT

Mohamed El Hdi Arouri, Adel Ben Youssef, Hatem MHenni, & Christophe Rault,

Empirical Analysis of the EKC Hypothesis for Sulfur Dioxide Emissions in Selected Middle East and North African Countries,
Volume 37, Number 2

Copyright 2012

EMPIRICAL ANALYSIS OF THE EKC HYPOTHESIS FOR SULFUR DIOXIDE EMISSIONS IN SELECTED MIDDLE EAST AND NORTH AFRICAN COUNTRIES
di Mohamed El He Arouri, Adel Ben Youssef, Hatem MHenni, & Christophe Rault*

he 2005 Environmental Sustainability Index (EIS) reportwhich benchmarks national environmental stewardshipsuggests that most Middle East and

*Mohamed Arouri, a full Professor of Finance and a researcher at EDHEC Business School, holds masters and Ph.D. degrees in economics from the Universite de Paris X Nanterre and a Ph.D. in management science from the Universite dOrleans. His research areas are energy economics, emerging markets finance, market efficiency, volatility modeling, and risk management. The authors publications have appeared in Journal of Banking & Finance, Energy Economics, Journal of International Money and Finance, Energy Studies Review, Energy Policy, Ecological Economics, Manchester School, and Applied Economics, as a sampling. Adel Ben Youssef, Associate Professor at the University of Nice Sophia-Antipolis, received his Ph.D. in economics from the same institution. He has been a visiting professor/researcher at numerous institutions with his main focus on the economics of information and communication technologies and industrial policies. The author has published more than 40 articles appearing in such journals as Environmental and Resources Economics, Journal of Agriculture and Food Industrial Organization, International Strategic Management, LIndustria, Energy Policy, Middle East Development Journal, Economic Analysis, and Economics Bulletin. Hatem MHenni, a full Professor of Economics at the High School of Commerce of Tunis, University of la Manouba, Tunisia, earned his Ph.D. in economics from the University of Nice Sophia-Antipolis. His affiliated research group is LARIME (Laboratoire de Recherche Interdisciplinaire sur les Mutations des Economies et des Entreprises) and his research interests are sustainable development, knowledge economy, and innovation policy. He has published numerous articles appearing in Energy Policy, Mediterranean Journal of Economics, International Journal of Technological Learning, Innovation and Development, and Middle East Development Journal. Christophe Rault is a Full Professor of Economics and a member of the Financial Economics research group at Toulouse Business School, France. His applied research interests include energy economics, labor economics, international macroeconomics, and transition economics. His publications have appeared in Ecological Economics, Economic Modelling, Energy Policy, Oxford Bulletin of Economics and Statistics, Oxford Economic Papers, Journal of Comparative Economics, and the Journal of Economic History, among others. The Journal of Energy and Development, Vol. 37, Nos. 1 and 2 Copyright 2012 by the International Research Center for Energy and Economic Development (ICEED). All rights reserved.

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North African (MENA) countries perform poorly in environmental quality management.1 The same conclusion was found by the newer version of the reportthe Environmental Performance Indexin 2010.2 According to this index, the MENA region can be divided into two distinct groups. The first one is composed of Algeria, Egypt, Iran, Jordan, Lebanon, Morocco, Syria, and Tunisia. These countries perform relatively well in terms of the environmental burden of disease and indoor air pollution. They also have roughly average results on most other indicators, but poor outdoor air pollution performance. Their scores on urban particulates and industrial carbon dioxide (CO2) performance fall far below other clusters. The second group is composed of Bahrain, Libya, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates (U.A.E.), Sudan, and Yemen. This cluster is comprised of mainly fossil-fuel producing and processing nations and two lowincome countries (Sudan and Yemen). They perform well on the environmental burden of disease but poorly on outdoor air pollution. Their scores are among the lowest in some of the water indicators but, most notably, they have the worst greenhouse gas per-capita performance of all the clusters. Therefore, the question of sustainability of growth in MENA countries is coming to the forefront. On the one hand, environmental constraints may lead to lowering the growth for the region in a context of a demographic boom associated with a high rate of unemployment. On the other hand, new opportunities and benefits from technology transfer may lead to a better trend of growth and sustainability. One of the most important questions that arises in this context is to understand the nature of the relationship between economic growth and environmental quality in MENA countries. According to the Environmental Kuznets Curve (EKC) hypothesis, as income increases, environmental degradation (emissions) increases as well until some threshold level of income is reached after which point environmental degradation begins to decline. An extensive literature has shown that the EKC hypothesis is validated for different local pollutants in the member states of the Organization for Economic Cooperation and Development (OECD). Thanks to their income percapita levels, most OECD countries have shifted from the first branch of the curve to the second one in pollutants, especially for local pollutants like sulfur dioxide (SO2), particulate pollution, nitrogen oxides (NOx), and river pollutants. An extensive literature has discussed the theoretical foundation of such findings. The picture seems quite different for developing states, especially MENA nations, where findings are often inconclusive.3 Our article investigates the MENA states as a region as well as at the country level by taking advantage of recent advances in the econometrics of non-stationary panel data econometric techniques and seemingly unrelated regression (SUR) methods. We choose to use SO2 emissions as the environmental quality proxy in order to test the existence of the Kuznets curve in the studied MENA countries. Three main arguments justify this choice. First, emissions of SO2 are among the

MIDEAST & NORTH AFRICA: SULFUR DIOXIDE EMISSIONS 209 most important forms of energy-related pollution in the region. They originate primarily from stationary sources in the industrial and power-generating sectors, and SO2 emissions are known for their adverse effects on human health and the natural environment. Second, although global sulfur emissions have increased over much of the last century, levels have begun to decline in recent decades. By 2000, the global emission level was approximately 25 percent lower than the peak observed in the 1980s. Nevertheless, this decline was not homogenous across world regions. Whereas emissions are still rising in many developing countries, industrialized countries experienced an especially strong decline with emission reductions of more than 50 percent from 1970 to 2000. Obviously, it is important to understand if this decline also is observed in MENA countries. Finally, SO2 is produced by burning fossil fuels and primarily is emitted from stationary sources in the industrial generating sector.4 Specifically, lignite and hard coal have high sulfur contents so that their combustion is responsible for a large part of global SO2 emissions. Yet, since the beginning of the 1970s, more end-of-pipe technologies, such as flue-gas desulfurization, have been adopted to filter sulfur dioxide. The existence of an EKC can reveal the extent to which MENA countries are adopting these new technologies. Thus, the aims of our article are threefold. First, we check for the existence of EKC in the 12 countries belonging to MENA in terms of their SO2 emissions. Second, we assess the theoretical values of the turning points from which the economic growth improves the environmental quality in these nations. Third, we investigate the nature of the causality relationship between economic growth and emissions of SO2. The remainder of the paper is organized as follows. We survey the theoretical foundation of the EKC and provide a synthesis of empirical studies on this topic. This is followed with a presentation of the data, introduction of the econometric methodology, and discussion of the empirical results. Subsequently, we offer our recommendations on appropriate policies and conclusions.

Literature Review
Theoretical Explanations of the Nature of the SO2-Economic Growth Relationship: Generally, the impacts of economic development on environment are disag-

gregated into three macro determinants: scale effect, technology effect, and composition effect.5 The scale effect refers to the fact that increases in output require more inputs and, as a by-product, imply more emissions. Therefore, economic growth exhibits a scale effect that has a negative impact on the environment.6 The technology effect refers to the invention of new, environmental friendly technologies and to the application of these new technologies in production that, in turn, leads to a reduction in environmental pollution.7 The impact of the technology effect is theoretically

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positive.8 The composition effect stems from changes in production of an economy caused by specialization (from agriculture and/or basic industries to high-tech services). All else equal, if the sectors with high emission intensities grow faster than sectors with low emission intensities, than composition changes will result in an upward pressure upon emissions.9 The expected impact of the composition effect is positive deriving from the Rostow evolution postulate. Due to the different nature of these individual effects, the overall impact of growth on the environment is ambiguous.10 Taking into account the nature of sulfur dioxide as a specific pollutant, several explanatory factors were proposed in order to explain the nature of the relationship between economic growth and SO2 emissions: (i) the decomposition of the economy structure, (ii) the adoption of new technologies and innovation, (iii) demographic factors as the structure of population or population density, (iv) environmental regulation, institutions, and control system, and (v) energy consumption structure. According to S. De Bruyen, change in industrial structure is the main factor affecting trends in SO2 emissions.11 D. Stern asserts that changes in technology can lead, with time, to reductions in pollution lowering of EKCin both developing and developed countries.12 Case studies, particularly in China, show that pollution-reducing innovation and standards may be adopted with relatively short time lags in some developing countries. D. Stern proposes that at middle-income levels, rapid growth can overwhelm these clean-up efforts, which have more effect in slower-growing higher income countries.13 Several articles show that population density is negatively correlated with sulfur dioxide emissions.14 The main explanations are lower transportation requirements and higher environmental preferences in populated areas. Population compositional change also has considerable environmental policy implication. In their 2011 research, T. Menz and J. Kuhling show that societies with a low population and young and high pro portion of senior citizens emit more sulfur dioxide.15 They verified these facts for 25 OECD countries from 1970 to 2000. In the same study, the authors argue that three factors actually determine national SO2 emissions: total national energy consumption, importance of fossil fuels with high sulfur contents in the process of energy generation (energy mix), and usage of end-of-pipe technologies.

Empirical Validation of the EKC Hypothesis for Sulfur Dioxide Emissions: Sulfur emissions show the most typical environmental Kuznets curve among the air pollutants. A wide range of publications shows that SO2 EKC is empirically validated for most OECD countries. Since the findings of T. Selden and D. Song and G. Grossman and A. Krueger, a plethora of literature has examined the EKC hypothesis for SO2 at both regional and national levels.16 D. Stern claims that, in most OECD states, the evidence for the inverted-U relationship is found only for a subset of environmental measures, e.g., air pollutants such as SO2 or suspended

MIDEAST & NORTH AFRICA: SULFUR DIOXIDE EMISSIONS 211 particulates.17 These findings are supported by those by M. Cole et al., T. Selden and D. Song, D. Stern and M. Common, G. Halkos, and A. Markandya et al.18 Finally, Y.-C.Wang confirms the existence of a long-run sulfur-income relationship for 19 OECD countries during the period 18702001.19 Understanding past emission patterns in OECD countries has numerous insights for future emission projections, especially in developing countries. One of the most important case studies is China. China has experienced rapid economic growth during the last two decades (19902010), and one can ask if this rapid growth has led to the validation of EKC for SO2. Recent works find that, even in developing countries like China, SO2 emissions and gross domestic product (GDP) per capita are following an EKC. For instance, C. Chang and J. Gao found that EKC is valid for SO2 emissions for 29 Chinese provinces during the period between 2000 and 2008.20 X. Mou et al. establish for the same period that the relationship between economic growth and SO2 emissions in the biggest city in China (Chongqing) is following an EKC.21 In contrast, J. Vincent shows that there is no confirmation of SO2 EKC for Malaysia.22 As for MENA countries, using cointegration analysis H. Chebbi et al. reveal a positive linkage between trade openness and per-capita SO2 emissions and a negative linkage between economic growth and per-capita SO2 emissions in the long run.23 M. Fodha and O. Zaghdoudi provide support for a long-run N-shape relationship between per-capita SO2 emissions and per-capita GDP.24 The authors confirm the EKC hypothesis. E. Akbostanci et al. study the relationship among SO2 emissions, energy consumption, and economic growth in Turkey at two levels: the national level and for the 58 Turkish provinces.25 The authors found a monotonic and increasing relationship at the national level. However, they found an N-shaped curve at the provinces level. Their findings do not support the EKC. Regarding the turning point values, the results show a large dispersion across different studies. According to C. Lieb, the reported turning points for SO2 range from U.S. $2,900 to U.S. $98,200 in purchasing power parity (PPP) 1985 U.S. dollars.26 The calculations are very sensitive to the estimation methods and the econometrics used. Recent studies show that turning points for most OECD countries range from U.S. $5,000 to U.S. $10,000. D. Stern and M. Common indicated that the turning point in OECD countries is U.S. $9,000.27 A. Markandya et al. found a turning point at U.S. $11,900 in PPP 1990 U.S. dollars.28 The turning points in non-OECD countries are extremely high and show unilateral increases in most instances. Our work extends the finding of this literature by examining the situation in MENA at two levels: the regional and national. D. Stern asserts that a large portion of EKC literature is statistically weak and, when these statistical problems are taken into account and appropriate techniques are used, EKC cannot exist.29 We challenge this view in our paper and show that using recent and appropriate econometrics leads to the existence of EKC for SO2 in MENA states.30

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Data and Empirical Results In what follows, after introducing the series of our data set, we start by testing for unit roots in our variables. If the variables are non-stationary in our country panel, we test for the existence of long-run cointegration relationships and investigate their magnitude. Finally, we estimate panel error correction models (ECMs) in order to examine the interactions between short- and long-run dynamics of our environmental variables.
Data Set and Panel Unit Root Tests: We investigate the relationship between SO2 emissions and GDP in the MENA region using recent panel econometric methods. As several MENA nations have signed the Kyoto Protocol, there are still concerns regarding the environmental problems. To conduct our empirical analysis, we need the following variables for all studied MENA countries: the SO2 emissions (S) and the per-capita real GDP (Y). We collected data from the World Bank Development Indicators.31 Our data are annual and cover the period 19812005 for the following 12 MENA states: Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, and the United Arab Emirates. The variables S and Y are measured in metric tons per capita and constant 2005 international dollars, respectively. At first, we empirically investigate the following model based on variables in natural logarithms:
2 Sit ai bi Yit ci Yit eit

The coefficients b and c represent the long-run elasticity estimates of SO2 emissions with respect to real GDP and squared-real GDP, respectively. According to the discussion above, under the EKC hypothesis an increase in income is associated with an increase in SO2 emissions (b > 0) and there is an inverted U-shape pattern at which point an increase in income leads to lower SO2 emissions (c < 0). The first step of the analysis is to look at the data properties. Two classes of tests allow investigating the presence of a unit root: the first generation panel unitroot tests (including K. Hadri and K. Im, M. Pesaran, and Y. Shin), were developed on the assumption of the cross-sectional independence among panel units (except for common time effects), and may be at odds with economic theory and empirical results.32 On the other hand, second generation tests (for instance, I. Choi and H. Moon and B. Perron) relax the assumption of cross-sectional independence, allowing for a variety of dependence across the different units.33 To test for the presence of such cross-sectional dependence in our data, we have implemented the simple test of M. Pesaranin his 2004 workand have computed the crosssectional dependence (CD) statistic.34 This test is based on the average of pair-wise

MIDEAST & NORTH AFRICA: SULFUR DIOXIDE EMISSIONS 213 correlation coefficients of the ordinary least-squares (OLS) residuals obtained from standard augmented Dickey-Fuller (ADF) regressions for each individual. Its null hypothesis is cross-sectional independence and is asymptotically distributed as a two-tailed standard normal distribution. Our results (available upon request) indicate that the null hypothesis always is rejected regardless of the number of lags included in the ADF auxiliary regression (up to five lags) at the 5-percent level of significance. This confirms that the MENA nations, as expected, are cross-sectionally correlated, which indeed can reflect here the presence of similar regulations in various fields such as environmental policies, trade, customs, tourism, legislation, business administration, and increasing financial and economic corporation. To determine the degree of integration of our series of interest (S, Y, and Y2) in our panel of 12 MENA states, we employ the bootstrap tests of L. Smith et al., which use a sieve-sampling scheme to account for both the time series and cross-sectional dependencies of the data through bootstrap blocks.35 The specific tests that we consider are denoted t; LM; max; and min. t is the bootstrap version of the well-known panel P unit root test of K. Im et al.36 LM N 1 N LMi is a mean of the individual i1 Lagrange Multiplier (LMi) test statistics, originally introduced by V. Solo.37 max is the P test of S. Leybourne and min N 1 N mini is a (more powerful) variant of the i1 individual Lagrange Multiplier (LMi), with mini min LMfi ; LMri , where LMfi and LMri are based on forward and backward regressions (see L. Smith et al., for further details).38 We use bootstrap blocks of m = 20.39 All four tests are constructed with a unit root under the null hypothesis and heterogeneous autoregressive roots under the alternative, which indicates that a rejection should be taken as evidence in favor of stationarity for at least one country. The results, shown in table 1, suggest that, for all the series (taken in logarithms), the unit root null cannot be rejected at the 5-percent level of significance in our country panel for the four tests.40 Therefore, we conclude that the variables are non-stationary in our country panel.41
Panel Long-Run Relationship: Given that all the series under investigation are integrated of order one, we now proceed with the two following steps. First, we perform second generation panel data cointegration tests (that allow for cross-sectional dependence among countries) to test for the existence of cointegration between S and Y, Y2 contained in X. Second, if a cointegrating relationship exists for all countries, we estimate for each country the cross-section augmented cointegrating regression.

  Sit ai gi Xit m1 St m2 Xt uit ;

with i 1; . . . ; N ;

t 1; . . . ; T

We utilize the CCE estimation procedure proposed by M. Pesaran that allows for cross-section dependencies that potentially arise from multiple unobserved common factors.42 The cointegrating regression is augmented with the cross-section averages of the dependent variable and the observed regressors as proxies for the unobserved

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THE JOURNAL OF ENERGY AND DEVELOPMENT Table 1

PANEL UNIT ROOT TESTS FOR SULFUR DIOXIDE EMISSIONS (S) AND PER-CAPITA REAL GROSS DOMESTIC PRODUCT (Y), SQUARE OF 2 a PER-CAPITA GROSS DOMESTIC PRODUCT (Y ), 19812005 Sulfur Dioxide Emissions (SO2) b Bootstrap P-value Statistic (b) 0.738 0.287 0.952 0.518 2.021 4.456 1.610 3.264

Test t LM max min Test  t LM max min Test  t LM max min

a

Statistic (a) 1.309 3.197 0.537 1.650 Statistic (a) 1.521 3.891 0.216 2.177

Bootstrap P-value 0.685 0.617 0.750 0.670

Per-Capita Real Gross Domestic Product (Y) b Bootstrap P-value Statistic (b) 0.492 0.123 0.865 0.224 2.4463 5.841 0.685 1.954

Bootstrap P-value 0.152 0.133 0.974 0.993

2

Square of Per-Capita Real Gross Domestic Product (Y ) b b Statistic (a) Bootstrap P-value Statistic (b) Bootstrap P-value 2.393 4.692 0.327 2.161 0.187 0.264 0.846 0.237 2.157 3.504 0.687 1.972 0.198 0.384 0.784 0.814

Test based on L. V. Smith, S. Leybourne, T.-H. Kim, and P. Newbold, More Powerful Panel Unit Root Tests with an Application to the Mean Reversion in Real Exchange Rates, Journal of Applied Econometrics, vol. 19, no. 2 (2004), pp. 14770. Rejection of the null hypothesis indicates stationarity in at least one country. All tests are based on 2,000 bootstrap replications to compute the p-values. Null hypothesis: unit root (heterogeneous roots under the alternative). b Statistic (a) = model includes a constant; Statistic (b) = model includes both a constant and a time trend.

  factors. Accordingly, St and Xt denote, respectively, the cross-section averages of S and Xi in year t. Note that the coefficients of the crosssectional means (CSMs) do not need to have any economic meaning as their inclusion simply aims to improve the estimates of the coefficients of interest. Therefore, this procedure enables us to estimate the individual coefficients g i in a panel framework.43 In addition, we also compute the common correlated effects mean group (CCE-MG) estimators of M. Pesaran.44 For instance, for the g parameter and its standard error for N cross-sectional units, they are easily obtained as p  folP P ^ ^ ^ ^ lows: gCCEMG N giCCE =N, and SEgCCEMG N sgiCCE N , i1 i1 ^ ^ where giCCE and sgiCCE denote, respectively, the estimated individual country time-series coefficients and their standard deviations.

MIDEAST & NORTH AFRICA: SULFUR DIOXIDE EMISSIONS 215 Table 2

PANEL COINTEGRATION BETWEEN SULFUR DIOXIDE EMISSIONS a AND POTENTIAL DETERMINANTS, 19812005 LM-stat Model with a constant term
a

Asymptotic P-value 0.000

Bootstrap P-value number 0.859

11.272

LM-stat : Lagrange Multiplier statistic; Bootstrap based on 2,000 replications; null hypothesis: cointegration of sulfur dioxide emissions and potential determinant series; and number test based on J. Westerlund and D. Edgerton, A Panel Bootstrap Cointegration Test, Economics Letters, vol. 97, no. 3 (2007), pp. 18590.

We now use the bootstrap panel cointegration test proposed by J. Westerlund and D. Edgerton.45 This test relies on the popular Lagrange Multiplier test of S. McCoskey and C. Kao and makes it possible to accommodate correlation both within and between the individual cross-sectional units.46 In addition, this bootstrap test is based on the sieve-sampling scheme and has the advantage of significantly reducing the distortions of the asymptotic test. Another appealing advantage of the joint null hypothesis is that all countries in the panel are cointegrated. Therefore, in case of non-rejection of the null, we can assume that there is cointegration between S and its potential determinants contained in X. The asymptotic test results (table 2) indicate the absence of cointegration. However, this is computed on the assumption of cross-sectional independence not the case in our panel. Consequently, we also used bootstrap critical values. We conclude that there is a long-run relationship between SO2 emissions and potential determinants, implying that over the longer run they move together.
Estimation of the Long-Run Parameters: Given the evidence of panel cointegration, the long-run pollution income relations can be further estimated by several methods for panel cointegration estimation. We estimate the above equation to assess the magnitude of the individual g i coefficient in the cointegrating relationship with the CCE estimation procedure developed by M. Pesaran, which addresses cross-sectional dependency.47 The respective estimation results are reported in table 3.
2 Sit ai g1i Y it g2i Yit uit ;

with i 1; . . . ; N ;

t 1; . . . ; T

The results show that there are inverse U-shaped relationships between percapita pollution and per-capita GDP for all studied MENA countries, with the exceptions of Kuwait, U.A.E., and Qatar. For Tunisia, the elasticity is 1.4300.870Y with the threshold income of 1.644 (in logarithms). The EKC hypothesis seems to hold in this case. We reach the same conclusion for Egypt. However, for Algeria the elasticity of SO2 emissions per capita with respect to real GDP per capita in the long run is 1.105-0.04Y with the threshold income of 27.625 (in logarithms),

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THE JOURNAL OF ENERGY AND DEVELOPMENT Table 3

INDIVIDUAL COMMON CORRELATED EFFECTS (CCE) ESTIMATES FOR 12 MIDDLE EAST AND NORTH AFRICAN COUNTRIES FOR SULFUR DIOXIDE EMISSIONS a AND POTENTIAL DETERMINANTS, 19812005 Y Country Algeria Egypt Jordan Lebanon Morocco Tunisia Bahrain Kuwait U.A.E. Oman Qatar Saudi Arabia
a

Y t-Stat 2.342 2.949 2.679 4.073 3.826 4.218 3.890 4.787 2.826 3.571 2.715 2.465 g2 0.020 1.080 0.841 2.203 0.343 0.435 0.203 2.179 0.778 1.490 1.813 0.352

Constant t-Stat 2.513 2.569 3.689 4.253 2.598 1.959 2.335 3.405 2.129 2.282 2.772 3.770 ai 2.754 5.551 4.849 4.136 0.205 5.539 3.672 14.200 11.713 5.295 10.205 4.734 t-Stat 2.115 2.781 2.898 2.417 2.532 8.508 1.912 5.190 5.117 3.616 5.818 4.574

g1 1.105 2.066 1.833 4.513 1.102 1.430 0.829 5.165 2.310 4.657 2.964 1.037

  Note the coefficients of the variables Et and X1t of equation (2) have not been reported in this table.

which is very high (when transformed in dollars) compared to its level of real GDP in that period. In contrast, for Saudi Arabia the elasticity of SO2 emissions with respect to real GDP is 1.037-0.704Y, implying a threshold income of only 1.473 (in logarithms), which is very low compared to the Saudi Arabian real GDP. Therefore, we note that for most countries where we found an EKC, we are confronted with the problem of the position of the threshold compared to the level of real GDP reached by each nation during the period. Our calculations lead us to conclude that none of the studied cases verified this particular EKC hypothesis except Egypt and Tunisia. Egypt noticed a remarkable improvement in SO2 concentrations during the first years of the 2000s, whereas daily average concentrations ranged between 20 to 40 micrograms per cubic meter of air (mg/m3), which is lower than the limit stated in the Executive Regulation of Environment Law 4 /1994 (150 mg/m3). This improvement is due to the efficient use of fuel in power stations and the industrial sector, reducing diesel fuel usage in these sectors and expanding natural gas usage. The actions related to the rationalization of energy use in Tunisia mainly were focused on stepping up the actions of mandatory and periodic energy audits and signing performance contracts in the industry, transport, and services sectors. Since the end of the 1990s, pilot projects in the field of energy conservation were implemented in the housing and services sectors and encouraged the use of energysaving equipment, appliances, and materials. Additionally, several programs were

MIDEAST & NORTH AFRICA: SULFUR DIOXIDE EMISSIONS 217 pursued in relation to cogeneration in the industrial sector, energy efficiency in street lighting networks, and rationalization of energy use in the administration and public facilities. Also, as part of implementing the state policy in the field of energy substitution and directing consumption toward less costly energy sources, effort and resources were invested in promoting the use of natural gas as a fuel in the transport sector and in fostering the utilization of natural gas-powered air conditioning in the services sector. Finally, the results from the common correlated effects mean group (CCE-MG) method are reported in table 4. Table 4 shows that the elasticity of SO2 emissions per capita with respect to real GDP per capita in the long-run is 0.2500.054Y with the threshold income of 4.630 (in logarithms), which is not supportive of the EKC hypothesis in the MENA region. This result was expected given the number of countries producing oil and gas in our sample.48
Estimation of a Panel Error-Correction Model: In the previous subsection, we have estimated the long-run relationships between S and Y, Y2 for our panel of 12 MENA states, using the common correlated effects mean group (CCE-MG) estimates (see table 4). Having established the long-run structure of the underlying data and given that there exists a long-run relationship for all countries in our four panel sets, we turn to the estimation of the complete panel error-correction model (PECM) described by equation (5): XP XP Bj Sitj u DXitj li Sit1 a gXit1 eit 5 DSit j1 j0 j

We use the pooled mean group (PMG) approach of M. Pesaran, Y. Shin, and R. Smith, with long-run parameters obtained with CCE techniques, in order to Table 4
RESULTS FOR THE COMMON CORRELATED EFFECTS MEAN GROUP (CCE-MG) ESTIMATIONS OF 12 MENA COUNTRIES FOR SULFUR a DIOXIDE EMISSIONS, 19812005 (1) X = (Y, Y ) Constant Y Y
a 2 2

3.42 (2.76) 0.250 (5.28) 0.027 (4.37)

The t-statistics are in parentheses; the Middle East and North African countries include Algeria, Egypt, Jordan, Lebanon, Morocco, Tunisia, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

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obtain the estimates of the loading factors li (weights or error-correction parameters, or speed of adjustment to the equilibrium values), as well as of the shortrun parameters bj and uj for each country of our panel.49 Consequently, the loading factors and short-run coefficients are allowed to differ across countries.50 The lag length structure p is chosen using the Schwarz (SC) and Hannan-Quinn (HQ) selection criteria and by carrying out a standard likelihood ratio testingdown type procedure to examine the lag significance from a long-lag structure (started with p = 4) to a more parsimonious one. Afterwards, in order to improve the statistical specification of the model, we systematically implemented Wald tests of exclusion of lagged variables from the short-run dynamic (they are not reported here) to eliminate insignificant short-run estimates at the 5-percent level. We tested the residuals from each PECM model for the absence of heteroscedasticity and autocorrelation; we can report that they are not subject to misspecification. The results of the PECM estimations based on equation (5) are reported in table 5, only for significant short-run estimates at the 5-percent level. Results from table 5 allow checking for two sources of causation: (1) the lagged difference terms (short-run causality) and/or (2) the error-correction terms (longrun causality). The causality from GDP to SO2 emissions depend on the level of economic growth. As for the long-run dynamics, the loading factor, which measures the speed of adjustment back to the long-run equilibrium value, is significantly negative in all cases, confirming that all the variables of our model move together over the long run. Thus, the long-run equilibrium deviation has a significant impact on the growth of SO2 emissions. Table 6 provides the readers with an overview of our results of the EKC for SO2 emissions on a country-by-country basis, including the turning points. Conclusion and Policy Implications Our article had three aims. First, we investigated the existence of EKC for the MENA region taken as a whole regarding SO2 emissions. Second, we tested for the existence of EKC for each country. Finally, we explored the nature of the causality relationship between economic growth and emissions of SO2. Compared to previous works, we took advantage of implementing more robust and recent bootstrap unit root tests and panel cointegration techniques to investigate the relationship between economic growth and SO2 emissions in MENA states. Departing from the hypothesis that the 12 countries are homogenous and looking at the regional level, our results reject the EKC hypothesis for the MENA region. This finding can be explained by at least three complementary arguments. First, although most of MENA countries recently have built a capacity to manage environmental problems and, especially, air pollution, the non-decline of SO2 emissions as GDP increases may be explained by corruption.51 In a study by A. Leitao, the author found an inverted U-shaped curve between SO2 and economic growth.

Table 5
2

PANEL ERROR-CORRECTION ESTIMATIONS SIT, X = (Y, Y ), 19812005 DYt 0.41 (3.14) 0.55 (2.23) 0.57 (2.76) 0.58 (1.98) 0.43 (2.21) 0.15 (2.13) 0.10 (2.10) 0.05 (2.63) 0.31 (4.42) 0.21 (3.21) 0.25 (2.74) 0.22 (2.16) Y 0.37 (4.19) 0.21 (4.48) 0.07 (2.91) 2 Y 0.015 (2.76) 0.21 (4.48) 0.18 (4.36) 0.17 (4.76) 0.13 (3.77) 0.05 (2.39) 0.03 (2.53) 0.21 (4.48) 0.38 (5.25) 0.21 (4.48) 0.22 (3.79) 0.08 (2.82) 0.10 (2.82) 0.04 (2.72) 0.05 (3.37) 0.03 (3.18) 0.09 (2.85) 0.01 (2.28) 0.07 (5.14) 0.07 (2.94) DYit-1 DY
2 it

D Sit-1

DY

2 t-1

Loading factor li 0.52 (4.95) 0.86 (3.22) 0.76 (4.13) 0.81 (3.38) 0.78 (5 .72) 0.27 (2.75) 0.14 (2.62) 0.65 (3.41) 0.05 (2.72) 0.58 (3.27) 0.45 (5.21) 0.40 (3.52)

Algeria Egypt Jordan Lebanon Morocco Tunisia Bahrain Kuwait U.A.E. Oman Qatar Saudi Arabia

0.40 (2.08) 0.28 (2.48) Intercept

CCE-MG

3.19 (6.15)

MIDEAST & NORTH AFRICA: SULFUR DIOXIDE EMISSIONS 219

The estimations are obtained from the pooled mean group approach with long-run parameters estimated with common correlated effects (CCE)   techniques. The coefficients of the variables Et and X1t of equation (2) have not been reported in this table; t-statistics are in brackets; S = sulfur dioxide 2 emissions; Y = per-capita real gross domestic product (GDP); and Y = square of per-capita real GDP; CCE-MG = common correlated effects mean group.

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THE JOURNAL OF ENERGY AND DEVELOPMENT Table 6

ENVIRONMENTAL KUZNETS CURVE (EKC) FOR SULFUR DIOXIDE IN THE MIDDLE EAST AND NORTH AFRICAN REGION, 19812005 Inverted U-shape curve Yes Yes Yes Yes Yes Yes Yes No No Yes No Yes Yes

Country Algeria Egypt Jordan Lebanon Morocco Tunisia Bahrain Kuwait U.A.E. Oman Qatar Saudi Arabia 12 countries

Intercept 1.105 0.040 Y 2.066 2.160 Y 1.833 1.682 Y 4.513 4.406 Y 1.102 0.686 Y 1.430 0.870 Y 0.829 0.406 Y 5.165 + 4.358 Y 2.310 + 1.556 Y 4.657 2.980 Y 2.964 + 3.626 Y 1.037 0.704 Y 0.250 0.054 Y

Turning point Very high 2,651 2,971 2,784 4,983 5,175 7,706 4,773 4,362 102,514

Ymin 5,530 2,460 3,032 6,565 2,254 3,602 16,648 22,873 41,862 10,269 43,705 18,243 2,254

Ymax 7,176 4,318 4,360 20,368 3,588 6,444 28,069 44,354 90,478 19,544 77,232 34,116 90,478

EKC No Yes No No No Yes No No No No No No No

However, A. Leitao suggests that different income-pollution paths across countries are found due to corruption. Most of the countries considered performed poorly in terms of corruption. While laws regulating air pollution exist, the enforcement of laws and control are ineffective due to corruption. Second, unlike CO2 emissions that are more closely linked to consumer behavior and are non-source pollution, SO2 emissions are more closely aligned with producers behavior and are local pollutants. The non-decline of SO2 in MENA nations also can be explained by the limited change in adoption of new technologies (endof-pipe technologies). While, in OECD countries there is a fall in SO2 emissions due to the massive adoption of new technologies for desulfurization, this is not the case in most of the MENA states. Changes in technological behavior may lead in the near future to a change in the relationship between economic growth and SO2 emissions. Moreover, the rapid growth of energy demand and, in particular, of electricity generation may explain the poor performances by MENA countries in reducing their SO2 emissions. It is well known that electricity generation plants emit high levels of sulfur dioxide. MENA countries are facing or will face shortages in this sector. As J. Krane states, for the six states of the Gulf Cooperation Council (GCC) . . . are unable to meet their own fast rising demand for domestic energy, mainly natural gas feedstock for electricity generation.52 These states are likely to encounter shortages in the near future due to their accelerating energy demand.53 Energy conservation options are envisaged. Some GCC countries are investing in nuclear power to generate energy and other MENA countries are investing in renewable energy generation.54 Third, most of the countries we considered in our study are based on a primary sector (rentier states) and their movement toward a service economy is low.55

MIDEAST & NORTH AFRICA: SULFUR DIOXIDE EMISSIONS 221 They have not yet reached a positive regime where the effect of growth on SO2 emissions is environmentally improving. The economic composition of these economies is changing slowly. Some nonoil countries, like Egypt and Tunisia, are changing their structural economic composition and are performing better than the others in the sample. At the national level, our results show that the EKC is not verified for the studied countries, with the exception of Egypt and Tunisia. Using a different methodology, our results confirm those of M. Fodha and O. Zaghdoudi.56 The authors show an evidence for sulfur dioxide EKC for Tunisia. Their main explanation relies on the enforcement of laws and the effectiveness of the control of plants, which are responsible for SO2 emissions. The economic structure of Tunisia, which is dominated by the service sector, also may help to explain this result. In the case of Egypt, the result can be explained by technological change and adoption of new technologies. In fact, Egypt has shifted to cleaner technology for electricity generation with its plants using more natural gas and burning less oil. This shift and more effective regulation have led to an improvement of the situation. Our results show that for these two nations the turning point values are very close to those found for OECD countries. In the case of Gulf Cooperation Council member states (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the U.A.E.), the shift toward greater energy efficiency could improve their performance.57 These states are exploring new policies, but this reorientation has not yet resulted in the development of consistent strategies and policies.58 At the same time, one must mention that several initiatives of renewable energy were taken in Algeria, Saudi Arabia, and other MENA countries, e.g., the pioneering project of Masdar Sustainable City.59 These initiatives are expected to improve the situation in the coming years. Actual efforts and policy changes are not captured by actual statistics, and the EKC is not verified at the country level in most cases. However, we think that these initiatives have the capacity to improve the situation.
NOTES Between 1999 and 2005, the Yale Center for Environmental Law and Policy and Columbia Universitys Center for International Earth Science Information Network co-published four Environmental Sustainability Index reports aimed at gauging countries overall progress toward environmental sustainability. See Yale Center for Environmental Law and Policy and the Center for International Earth Science Information Network, 2005 Environmental Sustainability Index: Benchmarking National Environmental Stewardship (New Haven, Connecticut: Yale University, 2005), available at http:// www.yale.edu/esi/ESI2005_Main_Report.pdf. See Yale Center for Environmental Law and Policy and the Center for International Earth Science Information Network, 2010 Environmental Performance Index (New Haven, Connecticut: Yale University, 2010), available at http://epi.yale.edu/. The 2010 Environmental Performance Index ranks 163 countries on 25 performance indicators tracked across 10 well-established policy categories covering both environmental public health and ecosystem vitality. These indicators provide a metric
2 1

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at a national government scale of how close countries are to established environmental policy goals. A pilot exercise was conducted in 2006 and a complete report was published in 2008. See M. Arouri, A. Ben Youssef, H. MHenni, and C. Rault, Energy Consumption, Economic Growth and CO2 Emissions in Middle East and North African Countries, Energy Policy, vol. 45 (June 2012), pp. 34249, and references therein. J. G. J. Olivier, J. A. van Aardenne, F. Dentener, V. Pagliari, L. N. Ganzeveld, and J. A. H. W. Peters, Recent Trends in Global Greenhouse Gas Emissions: Regional Trends 19702000 and Spatial Distribution of Key Sources in 2000, Environmental Science, vol. 2, nos. 23 (2005), pp. 8199. G. Grossman and A. Krueger, Economic Growth and the Environment, The Quarterly Journal of Economics, vol. 110, no. 2 (1995), pp. 35377; B. Copeland and M. Taylor, Trade, Growth, and the Environment, Journal of Economic Literature, vol. 42, no. 1 (2004), pp. 771; and W. A. Brock and M. S. Taylor, Economic Growth and the Environment: A Review of Theory and Empirics, in Handbook of Economic Growth, eds. P. Aghion and S. Durlauf (Amsterdam: Elsevier, 2005). K. Arrow, B. Bolin, R. Costanza, P. Dasgupta, C. Folke, C. Holling, B. Jansson, S. Levin, K. Maler, C. Perrings, and D. Pimentel, Economic Growth, Carrying Capacity, and the Environment, Ecological Economics, vol. 15, no. 2 (1995), pp. 9195.
7 J. Andreoni and A. Levinson, The Simple Analytics of the Environmental Kuznets Curve, Journal of Public Economics, vol. 80, no. 2 (2001), pp. 26986. 6 5 4 3

S. De Bruyn, Explaining the Environmental Kuznets Curve: Structural Change and International Agreements in Reducing Sulphur Emissions, Environment and Development Economics, vol. 2, no. 4 (1997), pp. 485503, and X. Han and L. Chatterjee, Impacts of Growth and Structural Change on CO2 Emissions of Developing Countries, World Development, vol. 25, no. 3 (1997), pp. 395407.
9 S. Dasgupta, A. Mody, S. Roy, and D. Wheeler, Environmental Regulation and Development: A Cross-Country Empirical Analysis, Policy Research Working Paper no. 1448, Policy Research Department, World Bank, Washington, D.C., 1995.

G. Grossman and A. Krueger, op. cit.; T. Panayotou, Demystifying the Environmental Kuznets Curve: Turning a Black Box into a Policy Tool, Environment and Development Economics, vol. 2, no. 4 (1997), pp. 46584; and M. Cole, Trade, the Pollution Haven Hypothesis and the Environmental Kuznets Curve: Examining the Linkages, Ecological Economics, vol. 48, no. 1 (2004), pp. 7181.
11 12

10

S. De Bruyn, op. cit.

D. I. Stern, The Rise and Fall of the Environmental Kuznets Curve, World Development, vol. 32, no. 8 (2004), pp. 1419439, and Beyond the Environmental Kuznets Curve: Diffusion of Sulfur-Emissions-Abating Technology, Journal of Environment and Development, vol. 14, no. 1 (2005), pp. 10114.
13 14

D. I. Stern, The Rise and Fall of the Environmental Kuznets Curve, op. cit.

T. Selden and D. Song, Environmental Quality and Development: Is There a Kuznets Curve for Air Pollution Emissions? Journal of Environmental Economics and Management, vol. 27, no. 2 (1994), pp. 14762; Matthew Cole and Eric Neumayer, Examining the Impact of Demographic

MIDEAST & NORTH AFRICA: SULFUR DIOXIDE EMISSIONS 223

Factors on Air Pollution, Population and Environment, vol. 26, no. 1 (2004), pp. 521; and Y. H. Farzin and C. A. Bond, Democracy and Environmental Quality, Journal of Development Economics, vol. 81, no. 1 (2006), pp. 21335. Tobias Menz and Jan Kuhling, Population Aging and Environmental Quality in OECD Countries: Evidence from Sulfur Dioxide Emissions Data, Population and Environment, vol. 33, no. 1 (2011), pp. 5579.
16 17 15

T. Selden and D. Song, op. cit., and G. Grossman and A. Krueger, op. cit.

D. Stern, Progress on the Environmental Kuznets Curve? Environment and Development Economics, vol. 3, no. 2 (1998), pp. 17396. M. A. Cole, A. J. Rayner, and J. M. Bates, The Environmental Kuznets Curve: An Empirical Analysis, Environment and Development Economics, vol. 2, no. 4 (1997), pp. 40116; T. Selden and D. Song, op. cit.; D. Stern and M. Common, Is There an Environmental Kuznets Curve for Sulfur? Journal of Environmental Economics and Management, vol. 41, no. 2 (2001), pp. 16278; George E. Halkos, Environmental Kuznets Curve for Sulfur: Evidence Using GMM Estimation and Random Coefficient Panel Data Models, Environment and Development Economics, vol. 8, no. 4 (2003); A. Markandya, A. Golub, and S. Pedroso-Galinato, Empirical Analysis of National Income and SO2 Emissions in Selected European Countries, Environmental and Resource Economics, vol. 35, no. 3 (2006), pp. 22157. Yi-Chia Wang, Short-run and Long-run Environmental Kuznets Curve: Case Studies of Sulfur Emissions in OECD Countries, International Journal of Economic Research, vol. 9, no. 1 (2012), pp. 116. C. Chang and J. Gao, China: A Country Case Analysis, in Green Growth Leaders: Green Growth From Religion to Reality, ed. M. Huberty (Berkeley, California: University of California, Berkeley, Berkeley Roundtable on the International Economy, 2011), pp. 7684.
21 X. Mou, Y. Tan, and P Gao, Evaluation of Sulfur Dioxide Pollution in Chongqing Based on Environmental Kuznets Curve, Energy Procedia, vol. 11 (2011), pp. 3375380. 20 19 18

J. R. Vincent, Testing for Environmental Kuznets Curves within a Developing Country, Environment and Development Economics, vol. 2, no. 4 (1997), pp. 41731. H. Chebbi, M. Olarreag, and H. Zitouna, Trade Openness and CO2 Emissions in Tunisia, Economic Resource Forum (ERF) 16th Annual Conference, Cairo, Egypt, November 79, 2009. M. Fodha and O. Zaghdoudi, Economic Growth and Environmental Degradation in Tunisia: An Empirical Analysis of the Environmental Kuznets Curve, Energy Policy, vol. 38, no. 11 (2010), pp. 1150156.
25 E. Akbostanc, S. Turut-Ask, and G. Tunc, The Relationship between Income and Envi ronment in Turkey: Is There an Environmental Kuznets Curve? Energy Policy, vol. 37, no. 3 (2009), pp. 86167. 24 23

22

Christoph M. Lieb, The Environmental Kuznets Curve: A Survey of the Empirical Evidence and of Possible Causes, Discussion Paper Series no. 391, University of Heidelberg, Department of Economics, Heidelberg, Germany, 2003.

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D. Stern and M. Common, op. cit. A. Markandya et al., op. cit. D. I. Stern, The Rise and Fall of the Environmental Kuznets Curve, op. cit.

Another concern is related to the measurements of the environmental indicators. The measures of the environmental degradation fall in two general categories: emission of the pollutants and environmental concentrations of pollutants. R. K. Kaufmann, B. Davidsdottir, S. Garnham, and P. Pauly, The Determinants of Atmospheric SO2 Concentrations: Reconsidering the Environmental Kuznets Curve, Ecological Economics, vol. 25, no. 2 (1998), p. 210. These two measurements illustrate different aspects of the environmental degradation situation and neither of them can offer a comprehensive description. Emission directly measures the amount of pollutants generated by economic activities during a period without regarding to the size of the area into which the pollutants are emitted. It is actually a flow measurement for the polluting capacity of economic activities. The concentration measures the quality of pollutants per unit area without regarding to the activity that emitted them; it is more like a stock measurement describing the final result of the encounter between emission, abatement efforts, and the self-purification capacities of nature. T. Selden and D. Song, op. cit., believe it should be easier to obtain an inverted-U curve for concentration than for emission indicators as concentration is a more direct environmental quality indicator and has more direct impact on productivity and public health
31 32

World Bank Development Indicators are available at http://data.worldbank.org/indicator.

K. Hadri, Testing for Stationarity in Heterogeneous Panel Data, Econometric Journal, vol. 3, no. 2 (2000), pp. 14861, and K. Im, M. Pesaran, and Y. Shin, Testing for Unit Roots in Heterogeneous Panels, Journal of Econometrics, vol. 115, no. 1 (2003), pp. 5374. I. Choi, Combination Unit Root Tests for Cross-Sectionally Correlated Panels, in Econometric Theory and Practice: Frontiers of Analysis and Applied Research: Essays in Honor of Peter C. B. Phillips, eds. D. Corbae, S. Durlauf, and B. Hansen (Cambridge: Cambridge University Press, 2006), chapter 11, pp. 31133, and H. Moon and B. Perron, Testing for a Unit Root in Panels with Dynamic Factors, Journal of Econometrics, vol. 122, no. 1 (2004), pp. 81126.
34 M. Pesaran,General Diagnostic Tests for Cross Section Dependence in Panels, Cambridge Working Papers in Economics no. 435 and CESifo Working Paper Series no. 1229, University of Cambridge, Cambridge, United Kingdom, 2004. 33

L. V. Smith, S. Leybourne, T.-H. Kim, and P. Newbold, More Powerful Panel Unit Root Tests with an Application to the Mean Reversion in Real Exchange Rates, Journal of Applied Econometrics, vol. 19, no. 2 (2004), pp. 14770.
36 37

35

K. Im, M. Pesaran, and Y. Shin, op. cit.

V. Solo, The Order of Differencing in ARIMA Models, Journal of the American Statistical Association, vol. 79, no. 388 (1984), pp. 91621. S. Leybourne, Testing for Unit Roots Using Forward and Reverse DickeyFuller Regressions, Oxford Bulletin of Economics and Statistics, vol. 57, no. 4 (1995), pp. 55971, and L.V. Smith et al., op. cit.
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39 40

The results are not very sensitive to the size of the bootstrap blocks.

The order of the sieve is permitted to increase with the number of time series observations at 1/3 the rate T , while the lag length of the individual unit root test regressions are determined using the Campbell and Perron procedure. See J. Campbell and P. Perron, Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots, in NBER Macroeconomics Annual, eds. O. Blanchard and S. Fisher (Cambridge, Massachusetts: MIT Press, 1991). The lag order in the individual ADF-type regressions is selected for each series using the Akaike information criterion (AIC) model selection criterion. Another crucial issue is the selection of the order of the deterministic component. Since the cross-sectional dimension is rather large here, it may seem restrictive not to allow at least some of the units to be trending, suggesting that the model should be fitted with both a constant and trend. However, since the trending turned out not to be very pronounced, we have considered that a constant is enough in our analysis. The results of the bootstrap tests of L. V. Smith et al. are not very sensitive to the inclusion of a trend in addition to a constant in the estimated equation (see Statistic b in table 1). Of course, we also checked using the bootstrap tests of L. V. Smith et al. that the first difference of the series are stationary, thus, confirming that the series expressed in level are integrated of order one. M. Pesaran, Estimation and Inference in Large Heterogeneous Panels with Multifactor Error Structure, Econometrica, vol. 74, no. 4 (2006), pp. 9671012. Note that, in order to estimate the long-run coefficients, we also have implemented the pooled mean group (PMG) estimators. See M. H. Pesaran and R. Smith, Estimating Long-Run Relationships from Dynamic Heterogeneous Panels, Journal of Econometrics, vol. 68, no. 1 (1995), pp. 79113, and M. H. Pesaran, Y. C. Shin, and R. Smith, Pooled Mean Group Estimation of Dynamic Heterogeneous Panels, Journal of the American Statistical Association, vol. 94, no 446 (1999), pp. 62134, which allowed us to identify significant differences in country behavior. However, we only report the results of the common correlated effects (CCE) estimators developed by M. Pesaran, Estimation and Inference in Large Heterogeneous Panels with Multifactor Error Structure, since they allow taking unobservable factors into account, which would not be the case of the PMG estimators. M. Pesaran, Estimation and Inference in Large Heterogeneous Panels with Multifactor Error Structure. J. Westerlund and D. Edgerton, A Panel Bootstrap Cointegration Test, Economics Letters, vol. 97, no. 3 (2007), pp. 18590. S. McCoskey and C. Kao, A Residual-Based Test of the Null of Cointegration in Panel Data, Econometric Reviews, vol. 17, no. 1 (1998), pp. 5784. M. Pesaran, Estimation and Inference in Large Heterogeneous Panels with Multifactor Error Structure. The burning of fossil fuels is the most significant source of air pollutants such as SO2, carbon monoxide, certain nitrous oxides such as NO and NO2 (known collectively as NOx), small particulate matter (SPM), volatile organic compounds (VOCs), and some heavy metals. It is also the major anthropogenic source of carbon dioxide (CO2), one of the important greenhouse gases.
48 47 46 45 44 43 42 41

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49 M. H. Pesaran, Y. C. Shin, and R. Smith, Pooled Mean Group Estimation of Dynamic Heterogeneous Panels.

Note that before considering equation (3), we first used a Wald statistic to test for common parameters across countries (i.e., li = l, and gi = g, for I = 1,. . . , N) with the CCE techniques of M. Pesaran, Estimation and Inference in Large Heterogeneous Panels with Multifactor Error Structure, that allow common factors in the cross-equation covariances to be removed. We found that only the null hypothesis g i = g, for I = 1,. . . , N was not rejected by the data, whereas the speeds of adjustment for li vary considerably across countries (results are available from the authors upon request). A. Leitao, Corruption and the Environmental Kuznets Curve: Empirical Evidence for Sulfur, Ecological Economics, vol. 69, no. 11 (2010), pp. 2191201.
52 J. Krane, Energy Conservation Options for GCC Governments, Dubai School of Government Policy Brief no. 18, Dubai, United Arab Emirates, February 2010. 53 54 51

50

Qatar is an exception among these countries.

N. Ghaddar, Climate Change Research on Energy Efficiency in the Arab Region: Final Report (New York: United Nations Development Program, July 18, 2010). The term rentier state connotes a country that derives most of its national income from the external sale of natural resources.
56 55

M. Fodha and O. Zaghdoudi, op. cit.

57 H. Doukas, K. D. Patlitzianas, A. G. Kagiannas, and J. Psarras, Renewable Energy Sources and Rational Use of Energy Development in the Countries of GCC: Myth or Reality? Renewable Energy, vol. 31, no. 6 (2006), pp. 75570.

D. Reiche, Energy Policies of Gulf Cooperation Council (GCC) CountriesPossibilities and Limitations of Ecological Modernization in Rentier States, Energy Policy, vol. 38, no. 5 (2010), pp. 2395403.
59 MENA countries are estimated to have a potential to generate 630,000,000 megawatts of solar power and also 75,000 megawatts of wind power potential. T. Ramavarman, MENA Has Potential to Generate 630 Million MW of Solar Power, AlKhaleej Times, October 8, 2009.

58