ENVIRONMENTAL KUZNETS CURVE HYPOTHESIS IN A FINANCIAL DEVELOPMENT AND NATURAL RESOURCE EXTRACTION CONTEXT: EVIDENCE FROM TUNISIA

Abstract

This study investigates empirically the Environmental Kuznets Curve hypothesis within a financial development and natural resource extraction context for aggregate and sectoral carbon dioxide (CO2) emissions in Tunisia. Using annual time-series data covering the period 1971–2016 it is found that financial development increases aggregate CO2, CO2 emissions from the transport sector, and CO2 consumption from liquid fuel but reduces CO2 emissions from manufacturing and construction as well as the residential and building. Natural resource extraction exerts upward pressure on CO2 emissions from the manufacturing and construction sector as well as from the consumption of gaseous fuels whiles the contrary is found for CO2 emissions. The existence of the EKC hypothesis or otherwise within the context of financial development and natural resources extraction is found to be dependent on the source of CO2 emissions in Tunisia. The findings among other things imply the enforcement of stringent environmental laws that ensure environmental quality amidst natural resources extraction and financial development.