The Effect of Trade Openness, Financial Development, and Economic Progress on Pollution in Gulf Countries

This paper presents an empirical investigation into the causal relationship between economic growth (GDP), financial development, trade openness, and CO2 emissions (environmental degradation) in seven Gulf economies from 1990 to 2022. The Ordinary Least Squares technique is employed to analyze panel data. The analysis utilizes the Cobb-Douglas production function to examine the causal link. The empirical results reveal a bidirectional Granger causal relationship between GDP and CO2 emissions and trade openness and pollution in Gulf economies. The existence of the environmental Kuznets curve hypothesis is confirmed through the causal link between GDP and environmental pollutants. Additionally, the neutrality hypothesis linking carbon emissions and financial sector development inflows is validated. The Gulf countries exhibit a bidirectional nexus between GDP and financial sector development, as well as between GDP and trade openness. Finally, panel causality analysis confirms the bidirectional causal connection between economic growth, environmental degradation (CO2), financial development, and trade openness.