A panel ARDL analysis of macroeconomic and environmental determinants of economic growth in the GCC

Abstract

This study examines the macroeconomic and environmental factors influencing economic growth in the Gulf Cooperation Council (GCC) states from 1973 to 2023. Using a Panel Autoregressive Distributed Lag (ARDL) model, the authors analyze both short-term and long-term relationships between GDP and variables such as carbon dioxide emissions, foreign direct investment (FDI), energy use, and urban population growth. The model accounts for heterogeneity and cross-sectional interdependence among GCC economies, providing a rigorous evaluation of the growth-environment relationship. Findings indicate that energy consumption and carbon dioxide emissions positively impact GDP in the long term, emphasizing the region's ongoing reliance on carbon-intensive energy systems. Conversely, FDI and urban population growth show weak or negative long-term effects, due to structural constraints and inefficiencies in investment and urbanization control. Short-term statistics reveal a positive effect of FDI. Notably, the PMG model's error correction term is significant at 4.6% and negative, indicating a stable long-term relationship and a moderate rate of adjustment toward equilibrium. The paper underscores the urgent need to diversify energy sources and develop sustainable urbanization strategies.