Economic development and carbon emissions across world regions: Exploring heterogeneous drivers

Global economic expansion has improved living standards and reduced global poverty. However, this expansion has been almost relied on burning fossil fuels, leading to unprecedented climate-changing CO2 emissions. This study attempts to understand the varying relationship between economic expansion and carbon emissions using multivariate regional comparison. For the period 2000 to 2021, we developed a panel dataset for 37 countries in four regions-Africa and the Middle East (AME), America, the Pacific-Asia, and Europe. Hence, this study examines the impact of economic growth, industrialization, urbanization, foreign direct investment (FDI), trade, and disaggregated fuels (coal, oil, and dry natural gas) on per capita CO2 emissions. Due to unresolved cross-sectional dependency and slope heterogeneity challenges found in the global data, we employed second-generation econometric methods, culminating in the Cross-Section Autoregressive Distributed Lag (CS-ARDL) model. Results from the aggregated regional analysis indicate that economic growth, industrialization, FDI, and all fossil fuel-based energy uses considerably trigger carbon emissions, while trade and urbanization have a minor offsetting influence, the latter of which is statistically tenuous. Most importantly, the regional heterogeneities are significant. In Pacific-Asia, coal usage is a major contributor, while in the AME region, the main consumption is natural gas, and in America, it is petroleum products. Moreover, in Pacific-Asia and Europe, FDI and trade openness act as mitigating factors. Finally, in Europe, urbanization lowers emissions significantly, while in America, it increases emissions significantly. The speed in which the system shifts back towards the long-run equilibrium is represented by the speed of the error-correction term. Therefore, the need for region-specific, rather than climate policy, is exactly the 'one-size-fits-all' climate policies. This research particularly draws on the need for tailored approaches by identifying the predominant fossil fuel substitute, targeting green FDI, and improving urban sustainability as top urban policies.