The Effect of FDI Inflows, Urbanization, Industrialization, and Technological Innovation on CO2 Emissions: Evidence from Tunisia

This study examines the impact of foreign direct investment (FDI) inflows, urbanization, industrialization, and technological innovation on CO2 emissions in Tunisia, with data over 1980-2016 period. To examine the stationarity of variables containing structural breaks, both sharp and smooth, we employ the novel unit root test (SOR). We likewise use the bootstrap ARDL bounds test method to check the existence of cointegration between CO2 and its determinants. The empirical results emphasize that CO2 emissions, FDI, urbanization, energy consumption, industrialization, technological innovation, and economic growth, are cointegrated in a long-run linkage. Furthermore, we reveal an inverted-U relationship between CO2 emissions and urbanization. Industrialization, real GDP, and energy consumption degrade the environment. FDI inflows and technological innovation affect insignificantly CO2 emissions, while the interplay between FDI inflows and technological innovation improve significantly the environment in Tunisia. The vector error correction model supports the feedback hypothesis between CO2 emissions and its components. Our empirical findings have substantial implications for the formulation of economic and ecological policies to accomplish sustainable environment in Tunisia.