Determinants of CO2 Emissions in Hydrocarbon-Dependent Economies: A Multi-Method Panel Analysis of GCC Countries

Abstract

This study investigates the key drivers of CO2 emissions in Gulf Cooperation Council (GCC) countries, focusing on energy consumption, economic growth, urbanization, trade openness, and institutional quality over the period 1980–2023. The analysis adopts a structured econometric framework in which each technique serves a distinct analytical purpose. Fixed-effects regression with Driscoll–Kraay standard errors is used to estimate contemporaneous relationships while accounting for cross-sectional dependence. LASSO regression is employed as an exploratory variable-selection tool to identify the most relevant predictors of emissions, while Common Correlated Effects Mean Group (CCEMG) and instrumental-variable fixed-effects (IV-FE) estimators are used as robustness checks to account for cross-sectional dependence, slope heterogeneity, and potential endogeneity. The results consistently identify energy consumption as the dominant determinant of CO2 emissions across all specifications, reflecting the persistent dependence of GCC economies on fossil fuel-intensive energy systems. GDP per capita also exhibits a positive relationship with emissions, suggesting a possible non-linear income–emissions relationship; however, the results do not provide robust support for the conventional EKC hypothesis. Population density is negatively associated with emissions, suggesting potential efficiency gains from urban concentration. In contrast, regulatory quality does not show a statistically robust effect and is excluded from the preferred specification by the LASSO procedure. The impact of trade openness appears model-dependent, indicating that its environmental effects vary according to the balance between scale and technology-transfer effects. Overall, the findings provide policy-relevant insights for balancing economic growth, energy transition, and decarbonization objectives in hydrocarbon-dependent economies.