Environmental Deterioration Response to Economic and Financial Progress, FDI, and Trade Openness in Egypt: Do Structural Breaks Matter?

This study aims to explore and evaluate the effects of economic growth, financial development, foreign direct investment, energy usage, population growth, trade-in service, and trade openness on carbon dioxide release in Egypt for the period 1977-2018. This study utilizes cointegration and structural break unit root techniques to investigate integrating features of the variables under examination and cointegration among those variables. The Toda-Yamamoto test is performed to test for causality among the variables. The unit root test, variance decomposition under the vector autoregressive (VAR) approach, impulse response function, and Granger causality under VAR environment have been applied to infer the short and long-run statistical dynamics. Empirical findings reveal that economic growth, energy usage, and total population may increase CO2 emissions. So, these factors are positively linked with environmental degradation. Besides, financial development and trade openness may improve environmental quality, as they significantly negatively affect CO2 emissions. Moreover, foreign direct investment and environmental degradation may cause each other in the Granger sense.