Nexus Between Carbon Emissions, FDI, Oil Prices, Economic Growth and Exports in Italy: Empirical Evidence from ARDL-Based Bounds and Wavelet Coherence Approaches

Over the last few decades, most countries’ rapid industrialization, population growth, rising energy consumption and lifestyle changes have increased the threat of global warming. In this context, this study examines the relationship between carbon emissions, economic growth, foreign direct investments, oil price, energy consumption and exports in Italy by using yearly data for the period 1970–2019. For this purpose, we first apply the Autoregressive Distributed Lag (ARDL) model; then we employ the wavelet coherence technique in order to check the causality among these variables. The novelty of this approach is that it ascertains the short-run and long-run correlation and causality among the variables simultaneously at different time periods and frequencies. Our findings show that the impact of foreign direct investments on carbon emissions is positive and statistically significant both in short and long-run which supports the pollution heaven hypothesis in Italy. Our results also reveal that the relationship between energy consumption and carbon emission is positive and statistically significant. Furthermore, the study also examines the validity of EKC hypothesis. The findings of ARDL shows that the relationship between economic growth and carbon emission is inverted U-shaped curve, thus providing evidence of the validity of Environmental Kuznets Curve (EKC) hypothesis.