Journal of Cleaner Production 264 (2020) 121663

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Journal of Cleaner Production

journal homepage: www.elsevier.com/locate/jclepro

The importance of renewable energy consumption and FDI inflows in

reducing environmental degradation: Bootstrap ARDL bound test in
selected 9 countries
Abdullah Emre Caglar
Akdeniz University, Antalya, Turkey

a r t i c l e i n f o a b s t r a c t

Article history: This study examines the relationship between renewable energy consumption, non-renewable energy
Received 4 August 2019 consumption, foreign direct investment, economic growth and carbon emissions for the nine countries
Received in revised form (i.e., Denmark, Finland, France, India, Italy, Morocco, Norway, Portugal, Sweden) identified in the Climate
18 March 2020
Change Performance Index (CCPI) 2018 report. This study mainly aims to demonstrate the role of
Accepted 10 April 2020
renewable energy consumption and foreign direct investment on CO2 emissions in countries with high
Available online 16 April 2020
scores in the CCPI using the newly developed bootstrap autoregressive distributed lag (ARDL) approach.
Handling Editor. Lincoln C. Wood For this purpose, the unit root properties of the variables are determined by sharp and smooth structural
break unit root test (SOR, Shahbaz et. al., 2018). We then conduct a bootstrap ARDL test developed by
Keywords: McNown et al. (2018) to investigate the existence of cointegration. We also use Granger causality based
Environmental kuznets curve on the bootstrap ARDL approach to identify causal relationships between variables. Empirical analysis
Non-renewable energy consumption results show only a few cointegration relationships between variables exist. However, we have identified
Pollution haven hypothesis significant long-term relationships between foreign direct investment, renewable energy consumption
Pollution halo hypothesis
and economic growth in some countries, and our study includes important policy implications, partic-
Renewable energy consumption
ularly for relationship among CO2 emissions and foreign direct investment inflows.
© 2020 Elsevier Ltd. All rights reserved.

1. Introduction Agreement was signed in 2015 through an initiative of the United

Especially in recent decades, climate change has evolved into
one of the most pressing problems facing the earth. Greenhouse gas
emissions from energy production and consumption from human
activities comprise the largest source of climate change (IEA,
2016a). The consumption of coal, oil and similar fossil fuels,
which started to increase during the Industrial Revolution, ac-
counts for the majority of carbon dioxide (CO2)1 emissions. “Since
1751, more than 400 billion tons of carbon have been thrown into the
atmosphere from fossil fuel consumption and cement production. Half
of these CO2 have appeared since the late 1980s” (Boden et al., 2017).
However, renewable energy serves as one of the most reliable ways
of achieving the world’s climate targets. Unlike non-renewable
fuels, renewable energy provides environmental, economic and
energy security benefits (IEA, 2016b). In light of these de-
velopments, the Kyoto Protocol was signed in 1997 and the Paris
E-mail addresses: aecaglar@akdeniz.edu.tr, emreacaglar@gmail.com.
1
The abbreviations and illustrations used in this study are shown in Table 1.
Nations Framework Convention on Climate Change. These collab-
orations aim to fight climate change, advance the capability of
governments to cope with its effects and encourage countries to
use clean energy (UNFCC, 1998; UNFCC, 2015).
Countries aiming for economic growth (Y) must consume en-
ergy resources in the production of goods and services. Therefore,
researchers focusing on climate change should consider the rela-
tionship between CO2, energy consumption (i.e., renewable energy,
REN; non-renewable energy, NREN; total energy, etc.) and eco-
nomic growth. The energy and environmental economics literature
feature several research topics that employ econometric methods
such as cointegration, causality and unit root.
Firstly, the Environmental Kuznets Curve (EKC) hypothesis
states that as per capita economic growth starts to increase, envi-
ronmental degradation does as well until per-capita economic
growth reaches a definite threshold and environmental degrada-
tion decreases (Grossman and Krueger, 1991; Mert and Boluk,
2016).
Secondly, the pollution halo and pollution haven hypotheses
(PHH) examining the relationship between CO2 and foreign direct

https://doi.org/10.1016/j.jclepro.2020.121663
0959-6526/© 2020 Elsevier Ltd. All rights reserved.
2 A. Emre Caglar / Journal of Cleaner Production 264 (2020) 121663
investment. The PHH states that developed countries with strict
environmental policies tend to move towards countries that are
weak in environmental regulations (Balsalobre et al., 2019). To the
contrary, the pollution halo hypothesis argues that FDI generates a
cleaner environment through the transfer of advanced technology
and better management in the host country (Azam et al., 2019).
Thirdly, policymakers can also use unit root tests to investigate the
characteristics of the series, determining whether the effects of
shocks on energy-environment variables are temporary or
permanent.
Lastly, four different hypotheses in the energy economics liter-
aturedgrowth hypothesis, conservation hypothesis, feedback hy-
pothesis, and neutrality hypothesisdexamine the relationship
between economic growth and energy consumption. Growth hy-
pothesis posits a uni-directional causality running from energy
consumption to economic growth, conservation hypothesis in-
dicates the existence of uni-directional causality from economic
growth to energy consumption, feedback hypothesis demonstrates
a bi-directional causal relationship between economic growth and
energy consumption and finally, neutrality hypothesis conjectures
that no causal relationship between energy consumption and
economic growth exists (Apergis and Payne, 2010).
Several studies in the energy and environmental economics
literature employ panel data and time series analyzes to investigate
the relationships between variables such as energy consumption,
economic growth, CO2, foreign direct investments (FDI), financial
development and urbanization. However, researchers still lack
consistent conclusions in this topic. Because problems associated
with small sample properties may arise in time series analysis,
researchers who seek to overcome these challenges turn to panel
data analysis rather than individual countries. Furthermore,
Shahbaz et al. (2018b) states that the most commonly used method
for testing the EKC hypothesis is the ARDL approach. However, the
ARDL approach proposed by Pesaran et al. (2001) also possesses
some disadvantages. For example, the bound test assumes no
feedback between the dependent variable and the independent
variables. Thus, the problem of endogeneity arises in the ARDL test
(Goh et al., 2017a). To solve this problem, McNown et al. (2018)
developed the bootstrap ARDL method. In addition, they demon-
strate through Monte Carlo simulations that the small sample
properties of this test are good; they also propose a new t-statistic
in the bootstrap ARDL bound test. Another econometric challenge
arises from the neglect of structural breaks in the series and non-
linearities in traditional unit root tests while investigating the unit
root properties of macroeconomic variables. In this situation, the
SOR unit root test proposed by Shahbaz et al. (2018), which solves
sharp and smooth structural breaks and nonlinear problems in the
variables, provides a consistent and trustworthy outcome (Shahbaz
et al., 2018).
Denmark, Finland, France, India, Italy, Morocco, Norway,
Portugal, and Sweden were selected for this study for the following
reasons: i) According to Climate Change Performance Index (CCPI)
2018 report, these countries are classified in the highest score
category; ii) These countries need to be specifically examined due
to their achievement of certain objectives in the field of climate
change; iii) The highest-scoring countries in the CCPI report are
important in terms of being an example to countries that do not
fulfill their obligations under the Paris Agreement.
These nine countries demonstrate a pronounced tendency to
mainly rely on renewable energy sources, particularly the European
Union countries, which set targets for increasing renewable energy
sources within the scope of sustainable growth. According to
Eurostat Statistics (2019), the share of renewable energies in gross
final energy consumption was 54.5% for Sweden, 41% for Finland,
35.8% for Denmark, 28.1% for Portugal, 18.3% for Italy, and 16.3% for
France in 2017. According to IEA (2019), Morocco has great potential
for renewable energy generation due to large wind and solar re-
sources. Renewable energy accounted for 34.5% of installed power
capacity in 2017. In addition, renewable energy in India has reached
an annual growth rate of 22% in the last decade (Sen et al., 2016). On
the other hand, these countries’ energy dependency rates, which
measure how much of a country’s energy production relies on
imports, also draw attention. For example, in 2017, energy de-
pendency rates were 26.5% for Sweden, 11.7% for Denmark, 48.6%
for France, 77% for Italy, 79.8% for Portugal and 43.9% for Finland.
Thus, more than half of the energy needs of Italy and Portugal were
met by net imports in 2017. However, Norway exported more fuel
than it consumed in 2017, and its energy dependency ratio
was
597.2%. However, according to IEA (2019), Morocco depends
heavily on energy imports, while India also relies on fossil fuel
imports (Jha and Puppala, 2017). From a general perspective, it is
evident that the policies of countries included in the analysis tend
to move from fossil energies to renewable energies.
Our study contributes to the literature in six ways: firstly, the
analyzed countries in this study are not randomly selected. Rather,
we analyze the countries with the highest scores in the 2018 CCPI
report. We choose these countries in order to demonstrate the
characteristics of the highest-scoring countries to policymakers
tackling climate change. Secondly, this is the first time such an
index has been used in an econometric study, to the best of our
knowledge. Thirdly, we investigate the relationship between REN,
NREN, Y, FDI and CO2 in the framework of the EKC, assessing
whether FDI affects carbon emissions. Fourth, our study applies the
SOR unit root test to examine the stationary properties of series.
Fifth, it uses the newly developed bootstrap ARDL approach by
McNown et al. (2018) to reveal cointegration relationships between
CO2 and REN, NREN, Y and FDI. In addition, the bootstrap ARDL test
performs better than the original ARDL bound test in terms of size
and power characteristics (McNown et al., 2018). Finally, we
examine causality relationships between variables using the
Granger causality approach based on the bootstrap ARDL approach.
In the previous literature, researchers who want to present
policy recommendations on tackling climate change include
country groups such as G20, OECD and MENA in their analyses.
However, in these communities, some countries take strict mea-
sures against climate change, while others do not take any such
measures. Therefore, reliable and consistent results for the com-
munities of the country might not be obtained. This study’s moti-
vation is to analyze countries with the same performance in the
fight against climate change through the newly developed boot-
strap ARDL method by McNown et al. (2018). Thus, this study fills
the gap in the literature of environmental economics by analyzing
successful countries with similar performance in the fight against
climate change. We find a lack of cointegration in the CO2 model.
However, some of the analyzed countries demonstrate clear evi-
dence of cointegration. Thus, we can estimate renewable energy
consumption in Denmark and Portugal, economic growth in India
and foreign direct investment in Portugal through our proposed
models. In addition, short-term Granger causality allows us to
obtain many important results. The study proceeds as follows: in
the second section, we review the current literature on the subject.
In the third section, we present our materials and methodology are
presented. In the fourth section, we review the results of the
empirical analysis and discuss economic practices, and we explore
the policy implications of our research in the final section.
2. Literature review
More and more researchers have begun to conduct empirical
studies on the environment thanks to a rise in environmental
 A. Emre Caglar / Journal of Cleaner Production 264 (2020) 121663
awareness partially due to global agreements such as the Kyoto
Protocol or Paris Agreement. In a world in which environmental
regulations have become increasingly widespread, researchers still
investigate which factors cause environmental degradation,
including through research topics in the literature such as the EKC
and PHH hypotheses and unit root properties (i.e. CO2, GDP) that
may partially explain environmental degradation.
The basics of the Energy and Environmental economics litera-
ture arise from Simon Kuznets’ (1955) work, which assumes an
inverted U-shape relationship between income inequality and
economic growth. Based on Kuznets’ (1955) study, the relationship
between environmental pollution and growth is first presented by
Grossman and Krueger (1991). Later, Shafik and Bandyopadhyay
(1992) and Panayotou (1993) provided important contributions to
the EKC hypothesis. When a country enters an upward growth
trajectory, environmental deterioration occurs first because of
environmental unconsciousness, lack of infrastructure, a lack of
awareness of environmentally friendly technologies and other
reasons. Then, as the growth reaches a certain level, environmental
degradation decreases owing to an increase in environmental
awareness, the use of environmentally friendly technologies and
the development of the service sector (Dinda, 2004).
Grossman and Krueger divide the changes in the level of
contamination into three classes. In the first phase of development
(i.e. an increase in GDP), environmental pollution rises due to
consumption of natural resources and increased production. Thus,
the effect of scales emerges (Usman et al., 2019). Secondly, the
composition effect is especially evident in the transition from
production sectors that use more intensive energy resources to
environmentally friendly sectors, especially those countries that
have switched to a knowledge economy (Shahbaz and Sinha, 2019).
Finally, manufacturers move towards a clean production process
due to technological advances. Thus, technology induces a reduc-
tion in environmental degradation (Liobikiene and Butkus, 2019).
In the literature, while the EKC hypothesis is supported (i.e., Al-
Mullali et al., 2016; Bilgili et al., 2016; Pata, 2018; Destek and
Sarkodie, 2019), some studies (i.e., Magnani, 2001; Bello and
Abimbola, 2010; Hossain, 2012; Pal and Mitra, 2017) have
concluded the evidence does not support this hypothesis. This
confusion in the literature arises from factors such as the choice of
countries, time span, difference of variables in the model, choice of
quadratic or cubic EKC model, demographic characteristics of the
analyzed country and selection of econometric methods. Even in
studies where the EKC is tested for the same country, it is observed
that various outcomes are accessed (see. Bulut, 2019; Sarkodie and
Strezov, 2019). In this case, Ozturk (2010) suggests that researchers
should address new econometric methods and different perspec-
tives to obtain more consistent and reliable results.
Grossman and Krueger’s (1991) posit that environmental
pollution occurs through three channels, including through FDI.
Because countries with weak environmental policies are attractive
for countries with strict environmental policies, environmental
degradation in the host country may increase and indicate the scale
effect (Sarkodie and Strezov, 2019). On the other hand, environ-
mental innovations and smart technology transfer can help host
countries fight environmental degradation through direct foreign
investment (Liu et al., 2017). Therefore, the scale effect is a
demonstration of the PHH, while the composition and technology
effect occurs when the Pollution Halo Hypothesis holds true (Zhang
and Zhou, 2016; Liobikiene_ and Butkus, 2019). No consensus on
whether foreign direct investment inflows can contribute to envi-
ronmental degradation in the host country exists. Some studies
advocate the validity of the pollution halo hypothesis that FDI
inflow will reduce environmental pollution through high techno-
logical transfer to the host country (Hao and Liu, 2015; Zhu et al.,
3
2016; Rafindadi et al., 2018; Cheng et al., 2019). On the contrary,
some studies demonstrate the validity of the PHH (Hitam and
Borhan, 2012; Seker et al., 2015; Solarin et al., 2017; Kocak and
Sarkgunesi, 2018; Terzi and Pata, 2019; Gorus and Aslan, 2019;
Naz et al., 2019; Shahbaz et al., 2019).
The relationship between growth and energy consumption
represents another important issue in environmental economics.
Growth may depend on energy consumption. In other words, the
existence of a uni-directional causality (growth hypothesis) from
energy consumption to economic growth indicates that decreases
in energy consumption may restrict economic growth. Further-
more, if this hypothesis is valid, energy serves as an important input
in the production process. Conversely, one-way causality from
economic growth to energy consumption expresses the conserva-
tion hypothesis. In other words, in a country where this hypothesis
is valid, economic growth is the main factor in energy consumption.
Therefore, the increase in income level causes a rise in energy
consumption (Odhiambo, 2009). When there is bi-directional
causal (feedback hypothesis) relationship from energy consump-
tion to economic growth in a country, energy consumption is a
crucial driver of economic growth. Moreover, emissions reduction
policies and excessive energy conservation policies may lead to a
decline in economic growth (Pao and Chen, 2019). Finally, when no
causality (neutrality hypothesis) in either direction exists, energy
saving policies do not affect economic growth.
In the literature on energy and environmental economics in the
nine countries included in this study, the results examining the
validity of the EKC hypothesis are inconsistent between individual
countries. Rather, these results vary according to method, data set
and variables. Kunnas and Myllyntaus (2007) used three different
environmental degradation indicators such as CO2, nitrogen diox-
ide and sulfur oxide to examine the existence of the EKC in Finland.
Moreover, Kunnas and Myllyntaus (2007) find that the EKC hy-
pothesis is not valid in Finland between 1800 and 2003. Acaravci
and Ozturk (2010) examined causal relationships among energy
consumption, CO2 and economic growth for Europe using the
autoregressive distributed lag (ARDL) framework developed by
Pesaran et al. (2001). They showed the lack of a cointegration
relationship between the variables for Finland, France, Norway and
Sweden. This study also ensures evidence for the validity of the EKC
hypothesis for Denmark and Italy. Seppala et al. (2001) explored the
existence of the EKC hypothesis for five industrial countries, finding
that the EKC hypothesis is not valid in Finland. Markandya et al.
(2006) investigated the validity of the EKC hypothesis in 12 West-
ern European countries using sulfur emissions to represent envi-
ronmental degradation. Using a fixed effects regression for
individual countries, they found that the EKC hypothesis is valid in
Denmark, Finland, France, Sweden and Belgium. Jayanthakumaran
et al. (2012) examined the long-term relationship between CO2 and
economic growth, energy consumption and trade openness by
using the ARDL method. Their study supported the validity of the
EKC hypothesis in India. Moreover, Kanjilal and Ghosh (2013)
achieved similar results as Jayanthakumaran et al. (2012) using
cointegration approaches that take into account one (Gregory and
Hansen, 1996) and two (Hatemi-j, 2008) structural breaks. In
addition, Boutabba (2014) focused on the role of financial devel-
opment in investigating the EKC hypothesis. As a result, his study
found results consistent with those of Jayanthakumaran et al.
(2012) and Kanjilal and Ghosh (2013) and provided evidence of
the existence of the EKC hypothesis in India. Shahbaz et al. (2010)
investigated the long-run relationship between CO2 and eco-
nomic growth, urbanization, trade openness and energy con-
sumption using the ARDL approach. They found evidence
supporting the EKC hypothesis in Portugal. Bento and Moutinho
(2016) investigate the validity of the EKC hypothesis for Italy,
4 A. Emre Caglar / Journal of Cleaner Production 264 (2020) 121663
examining the relationship between CO2 and economic growth,
renewable and non-renewable electricity production and interna-
tional trade with the ARDL test. As a result, they showed that the
EKC hypothesis is valid. However, when Haq et al. (2016) investi-
gated the validity of the EKC hypothesis in Morocco using the
Johansen cointegration technique, including income, energy con-
sumption and trade openness as explanatory variables in the long-
term equation, their results did not support the EKC hypothesis.
3. Materials and methodology
3.1. Materials
3.1.1. Data
Due to data availability, we included nine countries in the
empirical analysis. All series are collected from the World
Development Indicators (2019). The time period of these coun-
tries varies from country to country; the time spans can be seen in
Appendix 1. We use the longest data set available in our study. In
this paper, the variable CO2 represents the carbon emissions
(measured in metric tons of emissions) per capita, the variable Y
represents the GDP per capita (constant, 2010US$), the variable
NREN is consumption of non-renewable fuel energy (measured in
kilotons of oil equivalent) per capita, the variable REN represents
the renewable energy consumption (measured in kilotons of oil
equivalent) per capita and the variable FDI shows the foreign direct
investment, as measured in net inflows as a percentage of GDP.
Descriptive statistics for all variables can be seen in Table 2.
Table 2 shows that the highest volatility in per-capita CO2 is in
Sweden, while the lowest volatility is in India. Thus, Sweden is
actively regulating CO2. Sweden aims to reduce greenhouse gas
emissions to zero by 2050. Within the framework of this objective,
Sweden has begun to increasingly apply carbon taxation. CO2 is
expected to change continuously and thus increase volatility (IEA,
2016b). On the contrary, environmental economy variables follow
a strong trendline in India (IEA, 2015). CO2 emissions move along a
certain trend path in India. Moreover, the average gross domestic
product per capita is highest in Norway, while it is lowest in India.
In addition, maximum per-capita REN are seen in Finland, but the
minimum per-capita REN arise from Morocco. Notably, per-capita
REN is higher in Finland than in France. However, per-capita CO2
in Finland appears to be higher than in France. These results can be
explained through two mechanisms. First, as shown in Table 2,
Finland consumes more energy from fossil fuels on average than
does France. Furthermore, according to the Finland Statistical Unit
(2018) report, the share of fossil fuels in total energy consump-
tion still remains high in Finland. Secondly, we note that the flow of
foreign direct investment is higher in Finland than France. Ac-
cording to the Environmental Policy Stringency Index, France im-
poses stricter environmental policies than Finland (OECD, 2014).
The maximum FDI comes from Sweden, but the minimum belongs
to Denmark.
Table 1
Nomenclature list.
Abbreviations
CO2 CO2 Emissions
EKC Environmental Kuznets Curve
PHH Pollution Haven Hypothesis
ARDL Autoregressive Distributed Lag
SOR Sharp and Smooth Structural Break Unit Root Test
ADF Augmented Dickey-Fuller
PP Phillips-Perron
3.1.2. Climate Change Performance Index
In the literature on energy economics, many studies examine
climate change and its effects. These studies may cover a single
country or a particular panel. In particular, the countries involved in
an agreement are analyzed by both time series and panel data
methods. Researchers include country communities such as the G7,
G20, the European Union and OECD (i.e., Galeotti et al., 2006; Mert
et al., 2019; Yilanci and Ozgur, 2019; Qiao et al., 2019) into econo-
metric analyses to provide policy recommendations for fighting
climate change. However, while some countries within each com-
munity have taken intensive measures against climate change,
other countries only impose weak policies. Therefore, the meth-
odology may not be consistent and reliable for country commu-
nities. In this case, Goh et al. (2017a) recommends analyses for each
individual country. On the contrary, the Climate Change Perfor-
mance Index is published regularly every year:
“So far, 184 countries have ratified the Paris Agreement. Moreover,
these countries pledged to combat climate change by limiting the
global temperature rise to below 2 C and even to 1.5 C. CCPI as-
sesses the 2030 targets of the countries in important categories
(i.e., greenhouse gas emissions, renewable energy and energy use)
and determines whether the countries are on a road below 2 C. It
also uses relative indicators that measure both the current level
and past trends in all three categories” (CCPI18).
40% of the CCPI assessment is based on emission indicators, 20%
is based on renewable energies and 20% is based on energy use. The
last 20% of the CCPI score calculation depends on national and in-
ternational climate strategy assessments by experts in each
respective country. Thus, CCPI appears to be a tool intended to in-
crease transparency in international climate policies. In this study,
countries in the high-scoring CCPI category among the countries
fighting against climate change are analyzed. Thus, we will identify
common characteristics amongst countries that made progress in
the fight against climate change. Furthermore, countries that do not
take any action against global warming will be shown their envi-
ronmental policies.
3.1.3. Model
In this study, the quadratic model in equation (1) is consistent
with the models in Haliciogli (2009) and Baek and Kim (2013).
LCO2t ¼ a0 þ a1 LYt þ a2 LY2t þ a3 LRENt þ a4 LNRENt þ a5 LFDIt
þ εt
(1)
We converted all variables (i.e., CO2, Y, Y2, REN, NREN, FDI) into
natural logarithms (LCO2, LY, LY2, LREN, LNREN, LFDI). In addition,
since the natural logarithm cannot be obtained in some countries as
the variable FDI may take negative values, a constant number has
been added to the variable FDI, while LY2 denotes the square of LY.
In the EKC model, multicollinearity may arise due to the variables Y
and Y2. According to Ansuategi (2000), the use of Y2 to test EKC
Y Economic Growth
REN Renewable Energy Consumption
NREN Non-Renewable Energy Consumption
FDI Foreign Direct Investment
CCPI Climate Change Performance Index
ZA Zivot and Andrews
 A. Emre Caglar / Journal of Cleaner Production 264 (2020) 121663 5

Table 2
Descriptive statistics.

Variable Country Mean Medyan Minumum Maximum Std. Dev.

CO2 Denmark 10.360 10.505 5.936 13.715 1.682

Finland 10.551 10.592 8.562 13.261 1.179
France 6.882 6.281 4.573 9.667 1.428
India 0.870 0.828 0.406 1.730 0.373
Italy 6.981 6.880 5.271 8.216 0.756
Morocco 1.092 1.043 0.482 1.882 0.393
Norway 9.262 9.271 7.282 12.293 1.323
Portugal 4.096 4.344 1.758 6.410 1.440
Sweden 7.093 6.252 4.478 11.486 1.982

Y Denmark 46658.810 45655.920 30541.930 61174.550 10090.170

Finland 33565.180 31934.110 18373.790 49363.700 9512.410
France 32636.340 32869.780 20058.680 41630.090 6806.389
India 783.435 659.305 405.417 1642.393 362.009
Italy 29769.320 31292.050 17653.020 38236.800 6437.931
Morocco 1868.351 1732.057 1053.889 3113.799 601.731
Norway 69982.880 70457.690 41714.730 91617.280 16555.150
Portugal 16733.240 17398.130 8770.311 22829.850 4683.767
Sweden 39098.740 36831.270 26464.340 53618.580 8938.252

REN Denmark 187.242 157.388 64.439 410.828 99.449

Finland 965.694 866.894 652.438 1458.399 237.036
France 165.079 166.698 129.971 192.494 16.422
India 147.931 142.884 135.004 168.795 12.960
Italy 45.030 19.322 4.023 158.458 49.842
Morocco 43.551 40.647 39.025 76.097 8.376
Norway 207.792 218.262 105.611 297.657 44.700
Portugal 174.215 223.296 67.731 275.262 81.483
Sweden 663.237 654.699 355.744 964.057 180.341

NREN Denmark 3412.432 3421.551 2479.193 4023.384 329.385

Finland 4690.841 4799.013 2965.160 5904.003 755.964
France 3576.430 3663.062 2767.115 4160.315 405.495
India 249.834 236.634 107.913 501.185 112.958
Italy 2545.474 2557.923 1945.126 3136.130 347.446
Morocco 310.180 290.912 140.958 518.358 107.965
Norway 5117.929 5163.887 3856.622 6664.749 693.631
Portugal 1473.743 1550.044 577.925 2269.441 555.676
Sweden 4658.350 4659.526 3989.559 5231.344 343.347

FDI Denmark 1.484 0.660
4.998 21.938 3.872

Finland 1.721 0.412
3.510 10.753 2.976
France 1.300 1.039 0.204 3.879 1.066
India 0.700 0.385
0.030 3.621 0.872
Italy 0.609 0.380
0.397 2.995 0.689
Morocco 1.025 0.404
0.266 4.442 1.226
Norway 1.787 1.541
0.652 6.185 1.725
Portugal 2.134 1.274 0.270 10.157 2.174
Sweden 2.558 0.768
1.501 22.384 4.153

does not cause any discussion. In addition, the Y2 represents the
power of Y. Therefore, the high correlation between these variables
can be ignored (Oganesyan, 2017). The bootstrap ARDL method is
then used to estimate the model in Equation (1). Moreover, if we
determine the long-term relationship between variables, this
equation will allow us to test the validity of the EKC hypothesis.
This study focuses on the direction of the effects of FDI inflows
on CO2 in the studied countries. Towards this end, we also test the
PHH and pollution halo hypotheses. If the sign of LFDI is negative,
the pollution halo hypothesis is valid. On the contrary, if the LFDI is
positive, this strongly supports the validity of PHH.
The analysis of the relationship between LY, LY2, LREN, LNREN,
LFDI and LCO2 for nine countries consists of three stages. In the first
stage, we determine order of integration of variables with the
Augmented Dickey-Fuller (ADF, 1981) and Zivot and Andrews (ZA,
1992) structural break test and SOR unit root test. Secondly, we
examine the long-term relationship between the variables with the
bootstrap ARDL bound test. Lastly, we test the Granger causality
based on the bootstrap ARDL approach.
3.2. Methodology
3.2.1. Sor unit root test with sharp and smooth breaks
We apply the SOR unit root test proposed by Shahbaz et al.
(2018) to determine the integration properties of the variables.
Many unit root tests exist in the literature that take into account
structural breaks or traditional; however, most unit root tests do
not contain different dynamics such as sharp, smooth or nonline-
arity. For example, ADF and Phillips-Perron (PP, 1988) unit root
tests, which are frequently used in the literature, do not account for
structural breaks and non-linearity. In addition, in studies by Zivot
and Andrews (1992), Lee and Strazicich (2003), 2004 and Narayan
and Popp (2010), the structural break unit root tests used overlook
non-linearity. A unit root test that considers all these structural
dynamics does not face the problem of under-determination. SOR is
a superior nonlinear unit root test that considers sharp and smoth
structural breaks in time series (Shahbaz et al., 2018). Following
Leybourne et al. (1998a), the SOR test should require a two-stage
approach:
6 A. Emre Caglar / Journal of Cleaner Production 264 (2020) 121663

Step 1: In the first step of SOR unit root test, a genetic con- compose b ε t , staðbÞ when Model B is used, and sta;b when Model C is
strained nonlinear optimization algorithm is applied.2 The used. Researchers using the SOR unit root test should ensure that a
deterministic element of the selected model is then predicted. minor number of density parts do not repeat the kind of structural
The residues obtained from this estimate are calculated by using breaks that frequently occur in macroeconomic data set. To
the model A, model B and model C as follows: consider this detail, we consider a Fourier approach applying a
single frequency an element represented by k. Here, ak and bk
Model A: b b1
a
ε t ¼ yt
a b 2 Ft ð g
b; b
tÞ (2) represent the amplitude and displacement of the sinusoidal
element of the deterministic term. As a result, Shahbaz et al. (2018)
b1 þ b b; b
b 2 Ft ð g states that even if a one frequency k ¼ 1, multiple smooth breaks
Model B: b
ε t ¼ yt
a b1t
a tÞ (3)
can be allowed. Null and alternative hypotheses based on three
models with Fourier transform can be shown as:
Model C: b b1
b
ε t ¼ yt
a b 2 Ft ð g
b1t
a t Þ
bb 2 Ft ð g
b; b b; b
t Þt (4)
H0 : Unit Root ðLinear NonstationaryÞ

Step 2: In this stage, the Enders and Lee (2012) statistics are H1 : Nonlinear Stationary
calculated. We note that the calculated t-statistic shows the t-  
Nonlinear and Stationary around
ratio connected with 4b in OLS regression:
simultenously changing sharp and smooth trend
b
ε t ¼ dðtÞ þ 41 b
ε t
1 þ yt (5) In order to determine whether there is a unit root in the vari-
ables, critical values of the SOR test for Model A* produced by
where yt does not contain unit root disturbance with variance s2 . In Shahbaz et al. (2018) are tested against the hypothesis.
addition, d(t) shows the deterministic shape of t. It should be
emphasized here that ε is weakly dependent with a constant initial
value. When the functional shape of d(t) is given, Equation (5) can 3.2.2. Bootstrap ARDL bound test
be directly estimated to examine the null hypothesis that states the Pesaran et al. (PSS, 2001) developed an ARDL bound test to
existence of the non-stationary. However, Shahbaz et al. (2018) investigate the long-term relationships between time series vari-
states that the shape of d(t) is unknown. Thus, any testing for ables with mixed or first order of integration. With this property,
f ¼ 1 can be doubtful when d(t) is wrongly determined. Never- the ARDL test has brought innovation to the ongoing cointegration
theless, in this study, the Fourier expansion is applied with the literature with Johansen (1988), Johansen and Juselius (1990) and
assumption that it is feasible to about d(t): Engle and Granger (1987) approaches. On the basis of the ARDL
approach, equation (1) is rewritten and shown as follows. The
X   X  
n
2pkt n
2pkt equation considers the unrestricted intercept and no trend (Case
dðtÞ ¼ a0 þ ak sin þ bk cos ; n III):
T T
k¼1 k¼1
,
X
b X
j
T 2 (6) DLCO2t ¼ d0 þ d1 DU þ þ q1 DLCO2t
i þ q2 DLYt
i
i¼1 i¼0
X
k X
s X
u
where T denotes the number of observations, n represent the þ q3 DLY2t
i þ q4 DLRENt
i þ q5 DLNRENt
i
number of cumulative frequencies in the approximation and k i¼0 i¼0 i¼0
defines a given certain frequency. In such a situation, it should be Xm
noted that there is no nonlinear trend for all values of ak ¼ bk ¼ 0, þ q6 DLFDIt
i þ g1 LCO2t
1 þ g2 LYt
1 þ g3 LY2t
1
so the Leybourne et al. (1998b) specification becomes a specific i¼0
situation. They do not recommend using a large value for n as this þ g4 LRENt
1 þ g5 LNRENt
1 þ g6 LFDIt
1 þ vt (8)
may cause over-fitting problem. Several works, like Bierens (1997)
and Davies (1987), demonstrate that we can capture the crucial where d0 and DU represent the constant term and the break date
characteristics of a smooth break in an unknown functional form determined by ZA (1992) test, respectively. Moreover,
using the Fourier approach. Additionally, it is crucial to allow the q1 ; q2 ; q3 ; q4 ; q5 ; q6 and g1 ; g2 ; g3 ; g4 ; g5 ; g6 represent long-run and
nonlinear trend to occur gradually, so it is useful to select a small n. short-run coefficient, respectively. Finally, b, j, k, s, u and m in-
Finally, the testing equation can be written as follows: dicates the lag order. The ARDL bound test strictly assumes no
  X   relationship at the level from the dependent variable to the inde-
X
n
2pkt n
2pkt
Dbε t ¼ a0 þ ak sin þ bk cos pendent variables. So, this assumption requires that the variables
T T are weakly exogeneous. But, the assumption of exogeneity is rarely
k¼1 k¼1
valid in real data, especially in macroeconomic series (Shahbaz
X
p
þ 41 b
ε t
1 þ fk Db
ε t
i þ yt (7) et al., 2018). Furthermore, if two or more independent variables
i¼1 in the long-run equation cannot provide the assumption of weak
exogeneity, important assumptions of the distribution of PSS test
In the literature, it is popular to rise the lag length of the
statistics will be violated (McNown et al., 2018).
dependent variable in the test of the equation, so that the sta-
For the long-term equation specified in Equation (8), the bound
tionary dynamics in b ε t are considered. Simultaneously, the value of
test determines whether there is a long-term relationship between
this EL (2012) statistic is portrayed as sta in Model A and is used to
the variables. According to Sam et al. (2019), to have a cointegra-
tion, it is not enough to reject both overall F-test
2
H0 : g1 ¼ g2 ¼ g3 ¼ g4 ¼ g5 ¼ g6 ¼ 0 and t-test on lagged depen-
Omay and Emirmahmutoglu (2017) proved that the genetic algorithm is the
best performing algorithm for predicting LST equation types. Therefore, the SOR
dent variable H0 : g1 ¼ 0. McNown et al. (2018) proposed a new F-
unit root test uses the “genetic algorithm” in the estimation stage of the smooth test on lagged independent variable H0 : g2 ¼ g3 ¼ g4 ¼ g5 ¼ g6 ¼
transition trend. For details, see Omay and Emirmahmutoglu (2017). 0 for cointegration complementary to the t- and F-tests developed
 A. Emre Caglar / Journal of Cleaner Production 264 (2020) 121663 7

Table 3
Univariate unit root tests analysis.

At level

Country LCO2 LY LY2 LREN LNREN LFDI

Denmark ADF-stat
0.523 [0.876]
1.853 [0.350]
1.777 [0.386]
0.790 [0.811]
0.922 [0.771]
2.150 [0.227]
Finland
3.087** [0.034]
1.785 [0.382]
1.716 [-1.716] 0.126 [0.126]
2.880*** [0.055]
2.516 [0.118]
France
0.050 [0.948]
3.918* [0.004]
3.735* [0.006]
2.527 [0.116]
2.264 [0.187]
1.420 [0.563]
India 0.830 [0.993] 2.888 [0.999] 3.602 [0.999]
2.171 [0.219] 0.528 [0.985]
1.225 [0.653]
Italy
0.804 [0.807]
3.412** [0.015]
3.299** [0.021]
0.952 [0.761]
1.882 [0.337]
3.899* [0.004]
Morocco
1.423 [0.561] 1.256 [0.998] 1.538 [0.999]
2.148 [0.227]
1.879 [0.338]
1.080 [0.714]
Norway
3.311** [0.021]
1.903 [0.327]
1.858 [0.347]
2.915*** [0.052]
1.924 [0.317]
3.147** [0.031]
Portugal
2.552 [0.110]
1.625 [0.461]
1.583 [0.482]
0.880 [0.785]
3.025** [0.040]
0.593 [0.861]
Sweden
1.243 [0.647]
0.585 [-0.585]
0.508 [0.879]
1.555 [0.496]
2.059 [0.261]
2.009 [0.281]

Denmark ZA-stat
4.939*** (1996)
2.834 (2007)
2.838 (2007)
5.584* (1990)
2.839 (1991)
7.454* (2007)
Finland
3.430 (2007)
2.896 (1979)
2.833 (1999)
3.589 (1995)
3.172 (2007)
3.451 (2007)
France
4.068 (1981)
2.979 (2007)
2.911 (2007)
3.414 (1997)
2.589 (2007)
1.847 (2007)
India
2.996 (2000)
3.188 (1991)
2.707 (1991)
1.384 (1990)
3.407 (2000)
4.145 (2006)
Italy
0.551 (2007)
1.148 (2008)
1.076 (2008)
3.589 (2002)
0.793 (2007)
5.653* (2000)
Morocco
3.702 (1984)
3.012 (1992)
2.742 (2006)
2.964 (2004)
4.209 (2004)
7.077* (2003)
Norway
7.527* (1990)
2.808 (2008)
2.866 (2008)
1.562 (1984)
4.574 (1985)
4.862*** (1994)
Portugal
2.296 (2006)
2.245 (2008)
3.109 (2004)
6.986* (1989)
2.102 (2006)
6.204* (1988)
Sweden
4.824*** (1980)
3.654 (1999)
3.678 (1999)
3.727 (1983)
3.543 (2006)
2.672 (1993)

Notes: *, ** and *** stand for significance at 1%, 5% and 10% levels, respectively. The critical values for ZA unit root test at 1%, 5% and 10% are
5.34,
4.93 and
4.58,
respectively. The prob values for the ADF test are shown in [].

by PSS. When investigating the long-term relationship between cointegration between LCO2 and LY exists, we can conclude the
variables, the results of all three tests should be examined to linear combination of these two variables is stationary. In this case,
distinguish amongst of cases cointegration, non-cointegration, and the standard Granger test for LYt /LCO2t should add the lagged
degenerated cases (Goh et al., 2017a). According to McNown et al. differences on LYt and the lagged level of LYt , i.e. investigate
(2018), degenerate cases occur when either the lagged level of whether g2 > 0 and q2 ¼ 0 (Goh et al., 2017a).
the dependent variable or the lagged level(s) of the dependent
variable(s) is insignificant in the error correction term. The first
4. Empirical results and economic discussions
degenerate known as case 1 arises when the lagged level of the
dependent variable is insignificant. The second degenerate, defined
4.1. Analysis findings
as case 2, occurs when the lagged level of the independent variable
is found to be insignificant.
We apply the bootstrap ARDL test to examine the cointegration
Critical values for case 1 are available in the study of Pesaran
relationship between variables. But, in the empirical analysis phase,
(2001). However, Pesaran (2001) does not produce critical values
we need to ensure that the degree of integration of the variables are
for case 2. To get rid of case 1, the dependent variable must not
I (0) or at most I (1). Hence, in the first stage of the empirical
contain a unit root in the first difference. However, it should be
analysis, we use ADF unit root test and ZA unit root test with one
noted that unit root tests are controversial due to their low size and
structural break to investigate the unit root properties of the vari-
power characteristics. To overcome this problem, McNown et al.
ables. These results are reported in Table 3. According to the ADF
(2018) applies an additional F-test on the coefficients of the lag-
unit root test, LCO2 for Finland and Norway, LY and LY2 for France
ged independent variables (Goh et al., 2017a). Pesaran et al. (2001)
and Italy, LREN for Norway, LNREN for Finland and Portugal and
allow variables to contain a unit root with a mixed or unknown
LFDI for Italy and Norway is stationary at the level. However, con-
degree of integration in the bound test. Moreover, the bound test
ventional unit root tests may lead to misleading results in the case
involves only critical values for the upper and lower bounds. The
of a structural break in the series (Zivot and Andrews, 1992). This
test statistic calculated for cointegration must be greater than the
issue is solved by the ZA test, which considers the one structural
upper bound critical value. In this case there is a definite result.
break developed by ZA (1992). These results are shown in Table 3. In
However, if the calculated test statistic is found between the lower
the presence of a structural break, we note that LCO2 for Denmark,
and upper bound of the critical value, there is no definite result for
Norway and Sweden, LREN for Denmark and Portugal, LFDI for
the cointegration. The bootstrap ARDL bound test eliminates the
Denmark, Italy, Morocco, Norway and Portugal are found stationary
uncertainty of conventional ARDL testing by generating critical
at level. In addition, we observe that the variables having all unit
values based on the integration characteristics of the analyzed data
roots are stationary in the first differences.3 According to ADF and
(Cai et al., 2018).
ZA test results, it is noted that the order of integration of the vari-
ables in countries are mixed as I(0) or I(1).
3.2.3. Granger Causality test based on bootstrap ARDL approach To obtain robust results from unit root tests, we used a SOR unit
On the basis of the bootstrap ARDL model, we investigate short- root test. These results are given in Table 4. According to unit root
term causality relationships between renewable energy consump- test results, LCO2, LY, LY2, LREN, LNREN and LFDI have unit root in
tion, non-renewable energy consumption, foreign direct invest-
ment, economic growth, and CO2 with the standard Granger
causality test. For example, when LCO2t is a dependent variable, if
there is no cointegration between LCO2t and LGDPt , the Granger
test for LGDPt /LCO2t should include only lagged differences on 3
For all countries, the first differences of variables can be requested from the
LCO2t . So, in this case, we test whether q2 ¼ 0. However, if author.
8 A. Emre Caglar / Journal of Cleaner Production 264 (2020) 121663

Table 4
SOR unit root test analysis.

Variable Country t-stat a2 T g ak

LCO2 Denmark
2.611 2.558
5.080 3.511 1.747
Finland 0.423 3.077
0.770
21.779 7.539
France
2.860 3.260
1.022
8.102 46.144
India
0.708 0.401
1.382 131.479
3.310
Italy
3.265 1.774
0.709 0.443 0.951
Morocco
2.805
14.978 14.364 2825.156
118.738
Norway
4.024
5.785 7.915 1185.630
24.136
Portugal
2.289 15.385
14.621 431.102
6.429
Sweden
2.091 13.569
11.213 1812.255
65.850

LY Denmark
1.903 10.417
0.076
5087.021 36.200

Finland
1.328 9.879
5.915
1.160
3.499
France
0.863 10.786
0.792 429.782
2.174
India
3.239 6.826
1.012 403.002
148.551
Italy
1.200 10.662
0.771 137.013
0.351
Morocco
3.037
7.885 14.819
1830.269 28.393
Norway
3.506 10.636
0.313 0.436 0.880
Portugal
3.452 9.179
5.580 2.221 2.462
Sweden
3.059 11.309
1.152 238.029
0.116

LY2 Denmark
1.878 2171.101
3612.945
0.016 0.407

Finland
1.463 96.948
2.049 32.853 0.489
France
0.639 1672.621
3110.146
0.011 0.051
India
4.107 2737.644
2825.089 0.014
5.401
Italy
1.595 3213.164
5881.546
0.013 0.209
Morocco
4.178 47.434
1.673 23.836 0.499
Norway
3.477
2073.456 4900.651 0.016 0.338
Portugal
4.070 1993.087
3238.647
0.019 0.413
Sweden
2.871 102.695
1.522 2.903 0.476

LREN Denmark
2.733 2.688 1.273
0.516 0.501

Finland
3.763
5.378
5.449 5.272 2.827
France
2.518 16.647
11.479 875.788
35.673
India
2.318 6.370
1.233 56.048
3.233
Italy
2.571
0.907 2.527
0.296 0.392
Morocco 5.487*
5.489 9.116 2607.925
38.919
Norway
2.861 5.644
0.658
451.868 30.985
Portugal
2.367 2.708 1.247
0.269 0.904
Sweden
2.555 6.144
0.227
0.665 0.252

LNREN Denmark
2.056 8.242
5.492 1.025 2.159

Finland
1.726 8.297
0.113
6.570 54.015
France
4.061 8.006
5.571 1.503 3.329
India
0.467 14.886
10.271 2048.014
94.259
Italy
2.572 7.576
0.521 0.488 0.940
Morocco
3.667 5.112
0.211
1.394 0.058
Norway
4.059 9.275
0.964
1.725 14.766
Portugal
1.788 6.367
0.809 0.399 0.883
Sweden
2.924 9.168
0.736 358.112
2.138

LFDI Denmark
4.342 1.576
2.370 1.810 0.909

Finland
1.058 5.227
3.509
0.140 0.482
France
3.700 1243.674
2099.913
0.018 0.459
India
2.728 2.231
0.710
45.931 5.207
Italy
3.837 18.411
16.784 4289.894
62.855
Morocco
1.986
12.812 14.351 1198.636
50.190
Norway
3.352 19.556
17.902
2.984 1.931
Portugal
3.098 10.288
11.419 399.883
15.802
Sweden
4.116 597.209
996.919
0.019 0.462

Note: The critical t-values for SOR unit root test at 1% *, 5% ** and 10% *** are
5.415,
4.740 and
4.408, respectively.

all countries except LREN in Morocco.4 With the knowledge of all
nonlinear parameters shown in Model A*, it proves the existence of
sharp and smooth break in the variables.5 The SOR unit root test,
unlike the ADF and the ZA test, shows that except for LREN in
4
It should be noted that calculated t-statistic to accept the unit root hypothesis
must be smaller than the critical value generated by Shahbaz et al. (2018). The
critical t-values can be found in Table 5 in Shahbaz et al. (2018).
5
See Shahbaz et al. (2018) for more information.
Morocco, the variables face the unit root problem in all countries.
Thus, it is assured that the order of integration of variables is I(1) in
all countries.
When applying the ARDL method, misleading results may occur
if degenerate cases are not taken into consideration (Goh et al.,
2017b). In the bootstrap ARDL approach, two different degenerate
cases are explained and a new F-statistic is proposed. Furthermore,
the bootstrap ARDL test overcomes the low size and power char-
acteristics of the traditional ARDL test (Nawaz et al., 2019). After
 A. Emre Caglar / Journal of Cleaner Production 264 (2020) 121663 9

Table 5
Bootstrap ARDL cointegration analysis.

Country DV|IV Dummy variables Lag length FPSS tDV FIDV Diagnostic Check Result

Denmark LCO2|LY,LY2,LREN, LNREN,LFDI 1996 (1,1,1,0,1,0) 3.224 0.046 3.813*** þ X

LY|LCO2,LY2,LREN, LNREN,LFDI 2007 (2,1,2,0,2,0) 0.814
0.821 0.906 þ X
LREN|LCO2,LY,LY2,LNREN, LFDI 1990 (1,2,2,2,2,2) 4.407**
3.964*** 5.263** þ V
LNREN|LCO2,LY,LY2,LREN, LFDI 1991 (2,2,2,1,2,0) 1.591
1.302 1.854 þ X
LFDI|LCO2,LY,LY2,LREN, LNREN 2007 (1,0,0,0,0,1) 4.272**
4.812* 0.856 þ DIDV

Finland LCO2|LY,LY2,LREN, LNREN,LFDI 2007 (1,2,2,0,1,0) 3.037
0.514 1.843 þ X

LY|LCO2,LY2,LREN, LNREN,LFDI 1979 (2,0,1,0,0,2) 2.998
0.412 2.358 þ X
LREN|LCO2,LY,LY2,LNREN, LFDI 1995 (1,1,2,2,0,2) 2.074
1.407 1.277 þ X
LNREN|LCO2,LY,LY2,LREN, LFDI 2007 (1,1,0,0,0,0) 3.309
0.810 2.154 þ X
LFDI|LCO2,LY,LY2,LREN, LNREN 2007 (1,0,1,2,0,0) 3.158
2.739 1.951 þ X

France LCO2|LY,LY2,LREN, LNREN,LFDI 1981 (2,2,2,2,2,2) 4.420***
4.604** 2.795 þ DIDV

LY|LCO2,LY2,LREN, LNREN,LFDI 2007 (1,1,1,0,2,0) 1.080
1.457 1.144 þ X
LREN|LCO2,LY,LY2,LNREN, LFDI 1997 (1,1,2,0,0,1) 3.824***
3.960*** 3.505 þ DIDV
LNREN|LCO2,LY,LY2,LREN, LFDI 2007 (1,1,0,0,0,0) 2.448
1.666 2.460 þ X
LFDI|LCO2,LY,LY2,LREN, LNREN 2007 (1,0,2,1,0,0) 1.699
2.833 2.038 þ X

India LCO2|LY,LY2,LREN, LNREN,LFDI 2000 (1,1,1,0,0,2) 2.268
3.221 2.662 þ X

LY|LCO2,LY2,LREN, LNREN,LFDI 1991 (1,1,1,0,1,0) 4.480**
4.217** 5.001** þ V
LREN|LCO2,LY,LY2,LNREN, LFDI 1990 (2,2,2,2,2,2) 2.018
0.936 2.110 þ X
LNREN|LCO2,LY,LY2,LREN, LFDI 2000 (1,1,1,1,2,0) 1.998 0.478 2.392 þ X
LFDI|LCO2,LY,LY2,LREN, LNREN 2006 (1,0,1,1,0,1) 6.068
3.882 2.764 þ X

Italy LCO2|LY,LY2,LREN, LNREN,LFDI 2007 (2,0,0,0,1,1) 0.906 0.141 1.055 þ X

LY|LCO2,LY2,LREN, LNREN,LFDI 2008 (2,2,1,2,2,2) 1.569 0.712 0.662 þ X
LREN|LCO2,LY,LY2,LNREN, LFDI 2002 (1,1,0,1,0,0) 3.098
3.413 0.822 þ X
LNREN|LCO2,LY,LY2,LREN, LFDI 2007 (1,2,0,0,0,1) 1.255
1.018 1.474 þ X
LFDI|LCO2,LY,LY2,LREN, LNREN 2002 (1,2,2,2,2,2) 2.742
2.299 1.163 þ X

Morocco LCO2|LY,LY2,LREN, LNREN,LFDI 1984 (1,2,2,2,2,2) 3.341
2.590 2.733 þ X

LY|LCO2,LY2,LREN, LNREN,LFDI 1992 (2,0,2,2,0,0) 1.490
1.134 1.494 þ X
LREN|LCO2,LY,LY2,LNREN, LFDI 2004 (2,2,2,2,2,2) 3.398
4.120*** 3.414 þ X
LNREN|LCO2,LY,LY2,LREN, LFDI 2004 (1,1,0,0,0,0) 2.929
0.867 1.385 þ X
LFDI|LCO2,LY,LY2,LREN, LNREN 2003 (1,0,0,2,1,0) 5.371**
4.744** 0.751 þ DIDV

Norway LCO2|LY,LY2,LREN, LNREN,LFDI 1994 (2,0,0,0,0,0) 1.889
1.849 1.458 þ X

LY|LCO2,LY2,LREN, LNREN,LFDI 2008 (1,0,1,2,0,2) 0.522 0.012 0.627 þ X
LREN|LCO2,LY,LY2,LNREN, LFDI 1984 (2,1,0,0,0,1) 2.447
2.028 0.518 þ X
LNREN|LCO2,LY,LY2,LREN, LFDI 1985 (2,1,2,2,2,2) 4.691**
3.364 5.155** þ DDV
LFDI|LCO2,LY,LY2,LREN, LNREN 1994 (2,0,1,1,0,0) 3.046
3.293 0.993 þ X

Portugal LCO2|LY,LY2,LREN, LNREN,LFDI 2006 (2,1,1,1,1,1) 2.824
1.009 2.839 þ X

LY|LCO2,LY2,LREN, LNREN,LFDI 2008 (1,2,1,0,2,1) 5.345**
2.886 6.244* þ DDV
LREN|LCO2,LY,LY2,LNREN, LFDI 1989 (1,2,2,0,0,2) 23.847*
9.095* 7.863* þ V
LNREN|LCO2,LY,LY2,LREN, LFDI 2006 (1,2,1,2,2,1) 1.432
0.335 1.311 þ X
LFDI|LCO2,LY,LY2,LREN, LNREN 1988 (1,2,0,0,1,0) 5.732*
4.670** 4.498** þ V

Sweden LCO2|LY,LY2,LREN, LNREN,LFDI 1980 (1,2,2,0,2,1) 3.445
0.829 2.328 þ X

LY|LCO2,LY2,LREN, LNREN,LFDI 1999 (2,0,2,0,0,1) 1.907 0.016 2.010 þ X
LREN|LCO2,LY,LY2,LNREN, LFDI 1983 (1,0,1,1,0,0) 1.667
1.712 1.147 þ X
LNREN|LCO2,LY,LY2,LREN, LFDI 2006 (2,1,0,0,0,1) 1.533
2.379 1.003 þ X
LFDI|LCO2,LY,LY2,LREN, LNREN 1993 (2,1,1,1,1,1) 2.741
1.924 1.818 þ X

Note: *, ** and *** indicate significance at the %1, %5 and %10 levels, respectively. We use AIC for optimal lag length selection.
The lower and upper bound of Foverall statistic for India and Norway are (4.045/5.898) for %1, (2.962/4.338) for %5, and (2.483/3.708) for %10 level of significance, obtained from
Table case III, in Narayan (2005). The lower and upper bound of Foverall statistic for Denmark, Finland, France, Italy, Morocco, Portugal and Sweden are Narayan, 2005 (4.030/
5.598) for %1, (2.922/4.268) for %5 and (2.458/3.647) for %10 level of significance, obtained from Table case III, in Narayan (2005).
The lower and upper bound of tDV statistic for all countries are (
3.43/-4.79) for %1, (
2.86/-4.19) for %5, and (
2.57/-3.86) for %10 level of significance, obtained from
Table case III, in Pesaran et al. (2001).
The lower and upper bound of FIDV statistic for India and Norway are (3.71/6.02) for %1, (2.49/4.36) for %5, and (2.03/3.63) for %10 level of significance, obtained from Table 2
case III, in Sam et al. (2019). The lower and upper bound of FIDV statistic for Denmark, Finland, France, Italy, Morocco, Portugal and Sweden are (3.53/5.83) for %10, (2.46/4.24)
for %5 and (2.00/3.58) for %10 level of significance, obtained from Table 2 case III, in Sam et al. (2019).
The diagnostic test results are available upon reques.

deciding that variables are I(1) with the help of the SOR unit root autoregressive conditional heteroscedasticity, specification and
test, we apply the bootstrap ARDL test considering the possibility of normality).6 Only a few predicted equations reject the Foverall , FIDV
a stationary linear composition of LCO2 and LY, LY2, LREN, LNREN and tDV statistics simultaneously for the null hypothesis that no
and LFDI variables. The Foverall , FIDV and tDV statistics calculated in cointegration exists. This occurs for the LREN equation in Denmark
Table 5 are reported. The predicted equations pass all diagnostic and Portugal, the LY equation in India and the LFDI equation. The
tests (i.e., serial correlation, white heteroskedasticity, degenerate cases explained by McNown et al. (2018) are reported in
10 A. Emre Caglar / Journal of Cleaner Production 264 (2020) 121663

Table 6
Based on bootstrap ARDL approach Granger causality analysis.

Country DLCO2 equation DLY equation DLREN equation DLNREN equation DLFDI equation
F-stat or t-stat p-value-signs F-stat or t-stat p-value-signs F-stat or t-stat p-value-signs F-stat or t-stat p-value-signs F-stat or t-stat p-value-signs

Denmark LCO2 …
1.292(0.207)þ 3.195***(0.059)- 9.581*(0.000)þ …

LY
0.322(0.749)þ … 0.188(0.824)þ 1.560(0.229)þ …
LREN … … … 0.970(0.392)- …
LNREN 3.099*(0.004)þ 1.611(0.218)- 1.869(0.176)þ …
0.145(0.885)-
LFDI … … 1.547(0.234)- … …

Finland LCO2 … …
0.376(0.709)- 2.432**(0.020)- N.A.

LY 6.262*(0.005)- … 1.244(0.304)þ … 2.442(0.104)þ
LREN … … … … …
LNREN
2.364**(0.025)þ … … … …
LFDI … 8.325*(0.001)þ 0.023(0.976)- … …

France LCO2 … 0.248(0.805)-
0.178(0.859)-
0.457(0.650)- …

LY
0.128(0.898)þ … 3.472**(0.044)- … 0.053(0.948)-
LREN 1.953***(0.060)- … … … …
LNREN 1.581(0.147)þ 0.262(0.770)þ … … …
LFDI
0.948(0.350)- …
0.839(0.408)- … …

India LCO2 … 0.608(0.547)- 0.192(0.826)þ 0.883(0.386)- …

LY
0.343(0.734)þ … 0.272(0.762)-
0.863(0.396)þ 0.101(0.919)þ
LREN … … … 1.953(0.164)þ …
LNREN … 0.407(0.686)þ 0.116(0.891)- …
0.060(0.951)-
LFDI 2.795***(0.081)þ … 0.172(0.843)þ … …

Italy LCO2 … 0.253(0.778)-
2.232**(0.032)- 0.636(0.536)þ 0.056(0.945)-

LY … … … … 1.522(0.239)þ
LREN … 0.634(0.539)- … … 0.938(0.405)-
LNREN 0.308(0.759)- 0.155(0.857)þ … … 0.191(0.826)þ
LFDI 0.608(0.547)þ 0.178(0.837)þ … 1.034(0.309)- …

Morocco LCO2 … … … 0.307(0.760)- …

LY 0.593(0.561)þ … 0.286(0.753)þ … …
LREN 2.159(0.140)þ 0.725(0.493)þ … …
0.345(0.732)þ
LNREN 0.537(0.592)þ … 0.704(0.504)- … …
LFDI 2.761***(0.086)þ … 4.991**(0.015)- … …

Norway LCO2 … … …
0.291(0.774)- …

LY … … … 2.253(0.135)þ 0.988(0.332)-
LREN … 0.035(0.964)- … 0.534(0.595)- …
LNREN … … … … …
LFDI … 0.192(0.826)- 0.793(0.435)þ 1.139(0.343)þ …

Portugal LCO2 …. 2.218(0.128)- 10.911*(0.000)- 1.626(0.216)- 5.508*(0.009)-

LY
1.547(0.133)þ … 11.829*(0.000)þ 1.929(0.166)þ …
LREN
1.193(0.242)þ … … 0.548(0.584)þ 0.442(0.661)-
LNREN 0.329(0.744)- 2.993***(0.066)þ … … …
LFDI 0.372(0.712)þ 0.731(0.470)- 4.780**(0.016)þ 0.198(0.844)þ …

Sweden LCO2 … … …
0.760(0.452)þ
1.433(0.163)-

LY 0.054(0.947)þ … 1.161(0.253)- …
1.108(0.277)-
LREN … … … …
0.476(0.637)þ
LNREN 2.058(0.147)- … … … 0.526(0.602)þ
LFDI
1.060(0.298)þ 0.514(0.610)- …
0.898(0.376)- …

Table 5. Degenerate case 1 is found in Norway and Portugal. This
implies that the Foverall and FIDV statistics for independent variables
reject the null hypothesis indicating the absence of cointegration,
but the tDV statistic cannot reject the null hypothesis. The degen-
erate case 2 is valid for Denmark, France and Morocco, where both
Foverall and tDV statistics are significant, but the FIDV statistic is not
significant. Both degenerate states show the false cointegration
relationship between variables (Goh et al., 2017b).
In the nine selected countries, calculated Foverall , tDV and FIDV
statistics in the LCO2 equations must be simultaneously significant
in the long-term relationships between LY, LY2, LREN, LNREN, LFDI
and LCO2. In the empirical analysis results, we could not find any
long-run equilibrium relationship to test the EKC hypothesis for all
countries. However, some causality forms are seen in the short
term. The short-term Granger test conclusions are shown in Table 6
and Fig. 1. For Denmark, LCO2 could negatively cause LREN, with the
F-statistic of 3.195 significant at a 5% level. Furthermore, LNREN
positively causes LCO2, whereas LCO2 positively causes LNREN at a
1% level of significance. When Finland is examined, LY may nega-
tively cause LCO2 with a F-statistic of 6.262 in the LCO2 equation. As
well, LNREN could negatively cause LCO2, with a 5% level of sig-
nificance. Similarly, LCO2 could also negatively cause LNREN with
significant in LNREN equation. Finally, for Finland, LFDI positively
causes LY at 1% level. In terms of France, we detect a negatively uni-
directional causality running from LY to LREN with a F-statistic of
3.472. Moreover, a negative causality running from LREN to LCO2 is
 A. Emre Caglar / Journal of Cleaner Production 264 (2020) 121663 11

Fig. 1. Granger causality for nine countries.

detected in the LCO2 equation. When India is investigated in the
short-run, LFDI negatively causes LCO2 at 10% level. For Italy, LCO2
is negatively and significantly causally related to the LREN. For
Morocco, LFDI could positively and negatively cause LCO2 and
LREN, respectively. Finally, for Portugal, LREN is positively and
significantly associated with LY and LFDI. LNREN positively causes
LY, with an F-statistic of 2.993. We also find LCO2 negatively causes
LREN and LFDI, with a level of significance at 1% levels. In all the
remaining equations, we could not detect any causal relationship
between the variables examined.
4.2. Economic discussions
In this section, we examine the results of empirical applications
between LY, LY2, LREN, LNREN, LFDI and LCO2 with the bootstrap
ARDL approach developed by McNown et al. (2018). The results of
bootstrap ARDL bound test indicate several interesting results. First,
the examination of the cointegration results for the proposed EKC
model are examined demonstrate the existence of cointegration is
rejected in all nine countries. These results are consistent with pre-
vious studies, for instance, Kunnas and Myllyntaus (2007) on Finland;
Acaravci and Ozturk (2010) on Finland, France, Norway and Sweden;
Baek (2015) on Denmark, Finland and Sweden; Haq et al. (2016) on
Morocco; and Bese and Kalayci (2018) on Denmark. However, these
cointegration findings contradict the following studies: Markandya
et al. (2006) on Denmark, Finland, France and Sweden; Shahbaz
et al. (2010) on Portugal; Jayanthakumaran et al. (2012) and Kanjilal
and Ghosh (2013) on India; Bento and Moutinho (2016) on Italy;
Can and Gozgor (2017) and Shahbaz et al. (2017) on Italy; and Sghaier
(2019) on Morocco. Secondly, when LREN is a dependent variable, we
have demonstrated cointegration for Denmark and Portugal exists in
the long-run. Thirdly, we find a cointegration relationship exists for
India when LY is defined as a dependent variable. Finally, we observe
cointegration in Portugal’s data when LFDI is used as a dependent
12 A. Emre Caglar / Journal of Cleaner Production 264 (2020) 121663
variable. Since the model we proposed in our study is estimated by the
bootstrap ARDL method, the determinants of the independent vari-
ables are also estimated, so our study enriches the literature.
The short-term causality results in Denmark amongst LCO2 and
non-renewable energy consumption support the feedback hy-
pothesis. Moreover, LCO2 and LNREN positively affect each other.
Notably, renewable energy consumption also negatively causes
LCO2. Thus, renewable energy technologies contribute to the
reduction of LCO2 in the short term. These results are no surprise
for Denmark as the country accelerated the transition to low carbon
energy in 1990, particularly wind energy. In 2011, the government
published their Energy Strategy 2050, which proposes strategies to
transform Denmark into a country that reduces carbon emissions
through a reliable renewable energy source (Urban and
Nordensv€ ard, 2018). Importantly, this roadmap specifies methods
to use fewer non-renewable sources, as well as guidelines to in-
crease energy productivity and renewable energy sources.
In Finland, we note a positive uni-directional causality from LFDI
to LY, thus implying that LFDI contributes to economic growth. In
addition, LY appears to cause a decline in LCO2. Economic growth
therefore leads to a reduction in LCO2. In Finland, there is a feed-
back effect between LCO2 and LNREN negatively and positively,
respectively. It is seen that LNREN increases LCO2 as expected. In
France, we have identified a negative causality from LREN to LCO2,
such that LREN contributes to the reduction of LCO2, which is
consistent with expectations.
Another consequence for France arises from the negative impact
of economic growth on renewable energy consumption. The
negative conservation effect between economic growth and
renewable energy consumption shows that protective policies
applied to renewable energy consumption do not affect economic
growth. In India, direct foreign investments show a uni-directional
positive causality towards LCO2. This evidence supports the validity
of the pollution haven hypothesis in India.
In Italy, LCO2 decreases renewable energy consumption in the
short term. For Morocco, foreign direct investment leads to an in-
crease in carbon emissions, but also causes a decrease in renewable
energy consumption. This result implies that increased in-
vestments in Morocco lead to a greater level of pollution in the
country. For Norway and Switzerland, we do not find a causal
relationship between variables in the short term. However, in
Portugal, we discover many causal relationships in short-term
variable relationships. In Portugal, economic growth and foreign
direct investments increase renewable energy consumption, while
increased LCO2 leads to a decline in renewable energy consump-
tion. Moreover, a unidirectional negative causality exists from LCO2
to foreign direct investments. Another causal relationship appears
to be from non-renewable energy consumption to economic
growth. As a result, the evidence supports the validity of both the
growth hypothesis and the conservation hypothesis in Portugal.
5. Conclusion and policy recommendations
This study analyzes the relationship between economic growth,
renewable energy consumption, non-renewable energy consump-
tion, foreign direct investments and CO2 in the “green category”
countries or the highest scoring countries in the Climate Change
Performance Index (2018) report. This context makes use of the
Environmental Kuznets Curve. In the first stage of the empirical
analysis, we used the traditional ADF unit root test and one struc-
tural break ZA test. We then performed the SOR unit root test
proposed by Shahbaz et al. (2018) to obtain robust results. Ac-
cording to the unit root test results, we observed that almost all
variables are I(1). Then, we applied the bootstrap ARDL test to
determine potential cointegration relationships between variables.
These results showed that we could not find a cointegration rela-
tionship in LCO2 equations. Therefore, we could not test the EKC
hypothesis in the nine green countries. However, we did find
cointegration relationships that could determine long-term dy-
namics for economic growth, renewable energy consumption and
foreign direct investment. For example, we identified long-term
relationships with economic growth as a dependent variable in
India, with renewable energy consumption as a dependent variable
in Denmark and Portugal, and with FDI as a dependent variable in
Portugal. These relationships allow us to forecast economic growth,
renewable energy consumption and foreign direct investment in
the above-mentioned countries through our proposed bootstrap
ARDL model. We also identified many causal relationships between
variables in this study.
Regarding potential implications for policy implementation, we
could not identify a cointegration relationship for the long-term
LCO2 equation, but the short-term causality results show inter-
esting conclusions. In Denmark and Finland, we noted the feedback
process between CO2 and non-renewable energy consumption.
This implies that in Denmark and Finland, CO2 and non-renewable
energy consumption are determined simultaneously. For Denmark,
this result is consistent with Beşe and Kalayci (2019). Therefore,
when non-renewable energy consumption increases in these
countries, CO2 will immediately increase. Furthermore, the results
in Finland coincide with those of Sun’s (2000) study. Sun’s (2000)
findings imply that Finland should focus on renewable energy
technologies, avoiding intense carbon-emitting energy consump-
tion. Further, we found a negative causality from renewable energy
consumption to LCO2 in Denmark and France. In other words, in-
vestments in renewable energy technologies in these countries
lead to a decrease in LCO2 in the short term. The results of this
empirical analysis are consistent with Silva et al. (2012) as well as
that of Irandoust (2016). India and Morocco demonstrate a positive
causal relationship between LFDI and LCO2. The evidence thus
supports the pollution haven hypothesis in these countries. As well,
foreign direct investments inflow induces environmental pollution
in India and Morocco. Our findings for India and Morocco reflect
those in the Baek and Kao (2009) and Hakimi and Hamdi (2016)
studies. Contrarily, Tiwari et al. (2013) states that investors can
reduce their CO2 with new ideas and technology transfer in India.
However, this view contradicts the empirical findings in our study.
Our findings imply that each country’s levels of CO2 possess a
unit root with robust unit root results. This result shows that the
use of policy instruments for the nine countries can have a per-
manent impact on CO2. That is, if these countries implement new
legal reforms under the Paris agreement, the trend path of CO2 will
change and thus the countries’ goals to reduce global warming
below 2  C can be realized. In addition, we present the following
policy implications for each country:
Denmark
The Danish government’s decision in 2015 aims to reduce fossil
fuel consumption to zero by 2050. Our study reaches conclusions in
support of Denmark’s goal. Denmark needs to take immediate ac-
tion in order to achieve its 2050 target. Because we found a positive
bi-directional causal relationship between fossil energy consump-
tion and CO2 in our study, we also recommend further investment
in renewable energy technologies, while still considering economic
growth.
Finland
Our study makes significant contributions towards the ability to
realize the 2030 targets set by the Finnish Ministry of Environment
 A. Emre Caglar / Journal of Cleaner Production 264 (2020) 121663
for climate change. The Finnish government should develop short-
term policies for growth, foreign direct investment and the CO2
triangle. Our empirical analysis results find that foreign direct in-
vestment inflow positively affects growth. Subsequently, growth
has a negative impact on CO2. We thus conclude that economic
growth due to foreign direct investment will reduce carbon emis-
sions. Moreover, the Finnish Government should develop policies
to reduce the consumption of fossil resources through dissuasive
measures such as additional taxes.
France
We offer suggestions on how France can achieve its goal of
increasing the share of renewable energy in final energy con-
sumption to 32% by 2030. In our study, we found a negative uni-
directional causality between economic growth and renewable
energy consumption. Therefore, the French government must
consider sustainable growth policies while constructing policies
regarding renewable energy investments in the short term. In
addition, France should implement incentive programs to increase
renewable energy consumption to bring its levels closer to the 2030
target.
India
Foreign investors invest heavily in India to take advantage of
relatively low wages and tax exemptions. However, in our study, we
conclude that foreign investors cause environmental pollution in
India in the short term. We recommend an in-depth study of the
long-term effects of foreign direct investment on CO2 in India.
Italy
In our study, we found a negative relationship between CO2 and
renewable energy consumption. According to the results of robust
unit root tests, new policies on CO2 and renewable energy con-
sumption permanently impact these variables. Therefore, the Ital-
ian government should focus on sustainable policies for climate
change in line with the European Union objectives.
Morocco
Foreign direct investments cause environmental pollution in
Morocco. Moreover, foreign direct investments negatively affects
renewable energy consumption. The Moroccan government should
continue to invest in renewable energy. In addition, it should
develop policies (i.e. tax exemptions) that encourage foreign in-
vestors to keep the environment clean.
Portugal
Our analysis concludes that non-renewable energy consump-
tion positively affects economic growth in the short term. In
addition, foreign direct investments and economic growth also
increase renewable energy consumption in Portugal. Therefore,
Portugal should pay close attention to the competing balance of
interests in growth, renewable energy consumption and non-
renewable energy consumption against climate change. Economic
growth plays an important role for sustainable environmental
policies in Portugal.
Norway and Sweden
In our study, we concluded that policies against climate change
can be implemented effectively in Norway and Sweden. In other
13
words, a policy change on the variables examined persistently
impacts CO2. Therefore, Norway and Sweden should focus on the
relationships between CO2, economic growth and renewable
energy.
CRediT author statement
All roles in the study were undertaken by Abdullah Emre
CAGLAR.
Declaration of competing interest
The authors declare that they have no known competing
financial interests or personal relationships that could have
appeared to influence the work reported in this paper.
Appendix 1. Nine Countries and data periods analyzed
Country Time Span
Denmark 1970e2014
Finland 1970e2014
France 1970e2014
India 1975e2014
Italy 1970e2014
Morocco 1971e2014
Norway 1976e2014
Portugal 1970e2014
Sweden 1970e2014
Appendix A. Supplementary data
Supplementary data to this article can be found online at
https://doi.org/10.1016/j.jclepro.2020.121663.
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