Going Away or Going Green in NAFTA Nations? Linking Natural Resources, Energy Utilization, and Environmental Sustainability Through the Lens of the EKC Hypothesis

Abstract

This current study provides new insight by presenting the role of natural resources and renewable energy use in affecting carbon emissions in the background of the Environmental Kuznets Curve (EKC) hypothesis for the members of the North American Free Trade Agreement (NAFTA) considering the period from 1990 to 2018. Besides, the analysis controls for the influx of FDI to assess the validity of the pollution haven hypothesis as well. The results unveil the existence of the EKC hypothesis by verifying an inverted U-shaped association between economic growth and carbon emissions, only in the long run. Besides, evidence regarding the environmental resource curse is also revealed as higher natural resource consumption is seen to trigger a higher discharge of carbon dioxide both in the short- and long-run. Moreover, only in the long-run, higher renewable energy consumption is associated with lower volumes of carbon emissions. In addition, the pollution haven hypothesis is found to be invalid both in the short- and long-run. Lastly, the ratification of NAFTA is evidenced to foster economic progress but inhibit environmental sustainability for its members in the long run. Hence, it can be said that the NAFTA countries are going away rather than going green. Furthermore, these findings are mostly seen to be heterogeneous, in terms of magnitude, across different environmental pollution quantiles. Lastly, the analysis unearths unidirectional causalities extending from economic growth, renewable energy consumption, and foreign direct investment inflows to carbon dioxide emissions without the respective feedback causality. In light of these major findings, this study recommends some critically important policies.