The threshold effects of ICT on CO2 emissions: evidence from the MENA countries

The objective of this paper is to investigate the nonlinear relationship between ICT and CO2 emissions by controlling for economic growth, foreign direct investment, energy consumption, and trade openness. Using data from 16 Middle East and North African (MENA) countries over the period 1990-2019, we apply the Panel Smooth Transition Regression (PSTR) model, as introduced by (Gonzalez A, Terasvirta T, vanDijk D (2005) Panel smooth transition regression models. SEE/EFI Working Paper Series in Economics and Finance, No. 604), to study the potential regime-switching behavior of the relationship between the variables. The results reveal the existence of a strong regime-switching effect between ICT and CO2 emissions. It was found that after reaching a certain threshold, ICT use and penetration starts to significantly mitigate environmental degradation. Our results show that high levels of ICT not only improve environmental quality but can also be part of the solution to combat the environmental challenges that the MENA region has faced over the past decades. In addition, to account for the potential endogeneity bias, we also develop and estimate a PSTR model with instrumental variables (IV-PSTR) using the approach of (Fouquau et al., Econ Model 25:284-299, 2008). The results obtained confirm those initially found by the PSTR model. The study concludes with policy implications.

Automated summary

The objective of this study is to investigate the nonlinear relationship between ICT and CO2 emissions and find that after a certain threshold, ICT use starts to significantly mitigate environmental degradation. The results demonstrate that high levels of ICT not only contribute to improving environmental quality but can also be part of the solution to the environmental challenges faced in the MENA region.