Value addition in the services sector and its heterogeneous impacts on CO2 emissions: revisiting the EKC hypothesis for the OPEC using panel spatial estimation techniques

This study examines the Environmental Kuznets Curve (EKC) hypothesis in the context of 12 members of the OPEC by utilizing data on both the aggregate gross value added and the services' sectoral value-added between 1992 and 2015. This empirical work contributes to the literature by applying the panel spatial techniques which resulted in the findings as follows. Firstly, the results verify the authenticity of the EKC hypothesis for the aggregate level of gross value added as perceived from its inverted-U shaped association with CO2 emissions. Secondly, the disaggregated analysis affirms the heterogeneity of the validity of the EKC hypothesis across the subsectors within the services sector; this justifies the importance of analyzing the EKC hypothesis from a comprehensive (disaggregated) perspective for unearthing key sector-specific policy implications. The results reveal that the EKC hypothesis holds only in the context of construction services only but not for the cases of restaurant services, tourism and transportation services. These key findings call for effective measures to be undertaken to address the adverse environmental impacts that can be attributed to thse three sub-sectors for which the EKC did not hold. In line with the overall findings from the empirical exercises, it is recommended that the concerned OPEC members reduce their monotonic dependency on the consumption of fossil fuels, oil in particular, and gradually incorporate renewable energy resources into the energy-mix particularly within their respective services sector.