The Impact of CO2 Emissions and Energy Consumption on Economic Growth: A Panel Data Analysis

This study aims to examine the dynamic connection among economic growth, CO2 emissions, energy consumption, and foreign direct investments (FDIs). The panel section considers the period of 2000–2020 for 25 EU Member States excluding Malta and Croatia. The annual data are retrieved from the World Bank and Eurostat databases. The empirical analysis used estimation procedures such as first- and second-generation panel unit root tests (CIPS) and panel ARDL based on the three estimators PMG, MG, and DFE. The Hausman test indicated that the PMG estimator is the most efficient. The PMG and DFE estimators suggested that there exist only short-run causalities from CO2 emissions, energy consumption, and FDIs to GDP growth rate, while the MG estimator proved the existence of both short-run and long-run causalities. Three hypotheses on the positive correlation between the three regressors and GDP growth rate were in general confirmed. The identified causalities may represent recommendations for policymakers to stimulate the renewable energy sector to improve sustainable development.