Dynamic Modeling of Causal Relationship Between CO2 emissions, Economic Growth, Energy Consumption and Foreign Direct Investment in The Gambia

Abstract

Environmental degradation is a problem in developing countries. The use of non-renewable energy consumption for economic growth causes environmental degradation, but the consequences of environmental degradation cannot be ignored. The aim of the study was to understand relationship between CO₂ (Carbon dioxide) emissions, economic growth, energy consumption and Foreign Direct Investment (FDI) in The Gambia for the period from 1980 to 2019. To investigate the relationship between the variables, cointegration and  granger causality are used. The findings support the existence of long-run equilibrium between the variables. The empirical results reveal that energy consumption positively influences CO₂ emissions in short-run. Moreover, in the long-run, energy consumption and FDI  influence CO₂ emissions. The results of the study also reveal that there are two-way causalities between CO₂ emissions and economic growth, and between energy consumption and economic growth in both short-run and long-run in The Gambia. Therefore, policies aimed at increasing energy efficiency, as well as the adoption and utilization of renewable energy sources to replace old traditional energy sources such as charcoal, firewood, gas, and oil, are critical in reducing CO₂ emissions in the country while also sustaining economic development.

Keywords: CO₂ (carbon dioxide) emissions, Economic growth, Energy consumption, Foreign direct investment,  The Gambia

DOI: 10.7176/DCS/11-6-03

Publication date:June 30^th 2021