Exploring the Relationship between Economic Growth, Energy Consumption, Trade Openness, and Carbon Dioxide Emissions: A Case Study of Italy

Abstract

This paper investigates the relationships between economic growth, energy consumption, trade openness, and carbon dioxide emissions in Italy over the period from 1970 to 2019. To analyze these relationships, we employ several econometric techniques, including the ordinary least squares estimator, regression with Newey-West standard errors, and the autoregressive moving average model. Additionally, we perform unit root tests using the Augmented Dickey-Fuller test to ensure the stationarity of the data. The empirical results indicate a direct link between economic growth and carbon dioxide emissions. This finding suggests that as Italy's economy expands, CO2 emissions tend to increase, highlighting the environmental costs associated with economic development. Moreover, both energy consumption and international trade have a positive impact on CO2 emissions. This means that higher levels of energy use and greater trade activities are associated with increased emissions, likely due to the energy-intensive nature of industrial and transportation activities involved in these processes. Our findings support the existence of the Environmental Kuznets Curve hypothesis. According to the EKC, as an economy grows, environmental degradation initially increases, but after reaching a certain level of economic development, further growth leads to improvements in environmental quality. The results from this study are consistent with this hypothesis, suggesting that Italy may be experiencing the initial phase of the EKC where economic growth leads to higher CO2 emissions. The policy implications of these findings are significant. To mitigate the environmental impact of economic growth, Italy should consider adopting policies that promote sustainable energy consumption and cleaner production technologies. Enhancing energy efficiency and increasing the use of renewable energy sources can help decouple economic growth from CO2 emissions. Additionally, implementing stricter environmental regulations and encouraging green trade practices can further reduce the carbon footprint associated with international trade.