Does sustainable growth, energy consumption and environment challenges matter for Belt and Road Initiative feat? A novel empirical investigation

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Highlights

  • Belt and Road Initiative grabbed in 2013, that consider as "Going global strategy”.

  • Illustrate nexus between economic indicators and environmental quality in BRI.

  • .

  • Energy consumption unfavorable to the environment for all regions except South Asia.

  • Experts needs to address for green & renewable energy and conservable technologies.

  • Arrange awareness campaign for green investment anticipatory to realize BRI feat.

Abstract

The concept of modernization and globalization urges a tendency of bilateral cooperation and strategical relationships among the nations. Recently, China has taken the Belt and Road Initiative (BRI) in 2013 to articulate the slogan of "Going global strategy.” The primary objective of the current study is to explore the nexus between energy consumption, economic growth, population growth, financial development and carbon emission (CO2) for the panel of 65 BRI countries over the period of 1981–2016. Empirical results show that energy consumption, high-tech industry, and economic growth deteriorate environmental quality but financial development and renewable energy consumption have a favorable effect for the environment. The energy consumption is positively and significantly affecting the environmental quality for all regions except the South Asian region. The overall outcomes postulate a weak association of economic indicators with carbon emissions in the long run except for Europe, MENA, and Southeast Asian regions. This present study serves as a blueprint to experts, policymakers and BRI listed government officials suggesting that they should advise the masses and industries to shift towards renewable energy sources. Furthermore, the need to install the water treatment plants near to industrial zones is pertinent. Moreover, the environment monitoring organizations and portfolio investors should arrange awareness campaigns for green investments and renewable energy dependency to accomplish visionary BRI feat.

Introduction

The concept of modernization and globalization urges a tendency of bilateral cooperation and strategic relationships among all nations of the world. Accordingly, the Chinese Government has taken a heroic stride, called as “Belt and Road Initiative” (BRI). The president of China, Xi Jinping instigated this initiative while he officially visited Kazakhstan in 2013 (Chen, 2016). It is a striving package to tie up territories of Asia, Africa, and Europe through land and oceanic outline adjacent to six economic corridors, with an objective to refine the regional assimilation, fostering the trade magnitude and encouraging to the sustainable economic development. The BRI’s global scope is continually increasing it enfolds more than 71 countries, represents around 65 percent global population and bringing about one-third Gross Domestic Product (GDP) of the entire world as asserted by the European Bank for Reconstruction and Development (2018). This position is also affirmed by the recent study of Wang (2016) arguing that despite risks and uncertainties in achieving this feat, the execution will trigger China’s affluence, influence and position in regional and international community. The BRI project’s major resolutions covers; unimpeded trade, infrastructural connectivity, financial integration, policy coordination and sharing technologies and trained human resources to revolutionize various industries to spread the economic progression magnitude (Fung Business Intelligence, 2017). Besides, it is truly a “unified wide-ranging revitalized and groundbreaking” global structural economic development design to connect the world more densely and to nurture not only the bilateral trading partnership but also sustaining a geopolitical solidity and shared future (Ho, 2017).

The projected budget of this mega project for infrastructural expansion in the Asia Pacific would be around 23 trillion US dollars in 2030 (China Power Team, 2017). However, the International Energy Agency (IEA, 2014) estimated that the investments for interconnected BRI’s schemes increase from 4 trillion dollars to 8 trillion dollars. Hence, two-thirds of BRI’s investment is deployed for emerging and developing nations to underpin the velocity of their development. As stated by Laurance (2018), BRI will pledge over 7,000 project schemes which comprise the expansion of businesses, industries, power generation plants, the infrastructure of highways and railway, poverty alleviation and strategic collaboration. However, through these projects the concerning nations will have the chance to give a massive boost to their economic progress through the extension of trade, moving into new advanced markets, sharing manpower skills and technologies, and divergence of portfolio funds (Economy, 2017). Therefore, all these projections may reflect as core dynamic forces for sustainable and productive economic progression for BRI economies (Yii et al., 2018).

The BRI schemes in clustered countries will have multi-factor effects on human endeavor explicitly or implicitly. Indeed, every coin has two sides accordingly; on one corner, it will have constructive drifts on enclosed economies through bilateral collaboration and globalization. On the other hand, it might have shocking consequences such as ecological deterioration in the form of massive utilization of energy for power generation, industrial development, mass communication, transportation, urbanization and clearing out of woodlands for road and rail network lines (Laurance, 2018).

In this modern age of technology, energy is not only a base pillar for economic expansion but also an essential strategic reserve for a country. Likewise, the sustainable economic development absolutely depends on energy consumption (Kraft and Kraft, 1978, Li et al., 2018). The classical approach of the Solow growth model underscored the significance of labor force and capital input for economic advancement, later Rauf et al. (2018); Sarwar et al. (2017); Shahbaz et al., (2017) enlarged the Solow growth idea by integrating energy consumption as variables and testified that energy utilization is one of the core components for businesses, industries, and their sustainable development. The parallel findings are conveyed by Rauf et al. (2018) for BRI countries, where a feedback relationship has been confirmed between energy consumption and economic growth. Similarly, Chen et al. (2007) authorized two-way associations between energy consumption and economic growth. Moreover, Omri (2013), also endorsed a bidirectional interconnection between energy consumption and scale of economic development. The findings’ of Apergis and Ozturk (2015) informed that strong ties have existed between energy usage and magnitude of economic expansion. Narayan et al. (2010) scrutinized the causal connectedness between economic growth and energy consumption. The findings pronounced that the scale of energy consumption have a definite influence on economic growth in Asia, Latin American and Western European nations; while no link has been stated in Middle East economies.

An ample literature have been pinpointed that financial performance act as a force to reshape the climatic shift in an economy, which is frequently analyzed by Environmental Kuznets curve (EKC) Kuznets (1955), subsequently Grossman and Krueger (1991) testified well-known (EKC) hypothesis, which is a turn upside down “U” structure. It utters that during the preliminary point of economic evolution, policy architects generally focus on growth than ecological deteriorating challenges. Consequently, the second phase of economic evolution condenses the stride of pollutant (CO2) emissions. Eventually, in the third phase, policy architects familiarize with environmentally convivial strategies such as renewable energy sources, awareness about green investments, carbon taxes, industrialized handling plants, power-efficient technologies and transportation to curb the level of GHG emissions (CO2). Similarly, the EKC curve associates a correlational impact of economic growth over environmental stress (Tiwari et al., 2013).

The links between economic performance and environmental deterioration diverge across the economies due to the energy mix, population growth, industrial infrastructure and transportation means. A considerable volume of investigations; Balsalobre-Lorente et al. (2018) for 5-EU countries namely Germany, France, Italy, Spain, and the United Kingdom. The study finding shows and N-shaped pattern nexus between pollutant emission and economic growth for the 5-EU countries investigated. Furthermore, for single country case in Malaysia Begum et al. (2015) explored the economic expansion-environment nexus. The study fail to validate the EKC hypothesis for the investigated period. However, empirical results shows that in the long-rn ecconmic expansion have deteriorating effect on the ecosystem. The aforementioned studies have testified that through the early phases of economic growth, built-up economies entail more significant sources of energy to intersect the demands which consequentially lift the probabilities of environment worsening process (Bekun et al., 2019). Indeed, the heaving tendency of energy consumption around the world is accountable for the boost in CO2 emission that activated severe ecological complications. This is based on the fact that China is the second most prominent and most rapidly growing economic symbol of the world, alongside information of the Global Carbon Project (GCP) that was informed by World Bank, China is responsible for approximately 30% of worldwide CO2 emissions which together become more than of 200 nations (U.S. Energy Information Agency, 2014). Since, 2008 engaging an objectionable spot of being the global biggest CO2 emitter and highest coal consumer in the Asian region; thus China has turned to be a noticeable country around the world and facing pressure to drop its scale of CO2 emissions (Wang et al., 2016). However, China materializes a gray condition economy with the tag of energy and environment. Thus, condensing to the scale of carbon emissions will be a criterion need if each economy takes off fruitfully to pursue BRI challenges & prospects and drive to its global commitments.

Earlier research studies can be distributed into two strands of knowledge, where the first one is supporting to EKC hypothesis and the second is unable to support for the EKC hypothesis. The literature postulates variant methodologies and economic models to find the correlation between economic prosperity and CO2 emissions. One school of thoughts follow the environmental Kuznets curve (EKC) to correlate economic development with environmental health fluctuation. For instance, the Environmental Kuznets Curve (EKC) hypothesis have been evaluated by Jaunky (2011), set of 36 high income economies; Apergis and Ozturk (2015) 14 Asian countries; Musolesi et al. (2010) 106 developing and developed countries; and Toman and Jemelkova (2003) examined 25 OECD listed nations to analyzes their correspondence across these regions. All these research studies found a significant long-run correlation between economic growth and carbon emission and finally proved the (EKC) hypothesis. The second school of thought determined EKC in the presence of others predicting regressors. Ayeche et al. (2016) confirmed the linkages between economic growth (GDP), financial development, trade openness, and CO2 emission over the period of 1985–2014, inclosing 40 European countries. Resultantly, the outcomes displayed bidirectional causation between financial development and economic growth, CO2 emission and economic growth (GDP), trade openness and economic growth, CO2 emission and trade openness and lastly trade openness and financial development.

Additionally, Rauf et al. (2018a) also endorsed an EKC hypothesis under Mean Group (MG) analysis in full and continent regional panel for 65 BRI countries, but PMG model only publicized the existence of EKC hypothesis in developed economies. Meanwhile, Chen and Chen (2015) contended that swift urbanization is a tracking component to strengthen the scale of energy consumption. Since the different episode of activities in metropolitan cities are accountable for around 70% of (GHGs) emission, but an epic scale of approximately 67% is due to energy consumption in the world. Additionally, Chen and Chen (2015); Xu and Lin (2016b) propagated that over and above 50% of entire world’s population is residing in urban zones (areas). Hence, the surprising proliferate in urban population is a rationale backed by energy resources management and sustainable socioeconomic advancement (Lee and Chang, 2007). Recently, Omri (2013) addressed that developing economies are meticulously linked with the expansion of energy consumption due to explicit bind between energy consumption and economic development. Furthermore, Khan et al. (2017) scrutinized the empirical association of energy consumption, financial development, trade and CO2 emission on income based dataset (2001–2014) for the world. Concludingly, various dynamic panel models portrayed a strong nexus among the variables and bidirectional connectedness also observed in those income based-regions.

Though, some researcher is not firmly supported the EKC hypothesis, e.g. (Toman and Jemelkova, 2003) investigated links of growth and CO2 emission, and postulated conflicting environmental states. Arouri et al. (2012) uses Granger causality approach and establish a weak signal to leverage EKC hypothesis, similarly Saboori and Sulaiman (2013) verified EKC hypothesis for Brazil, but Saboori and Sulaiman (2013) fail it for Malaysia, their study applied ARDL approach on annual series of CO2 emission and GDP as a proxy for economic development. Soytas et al. (2007) explored a nexus between fixed capital formation, energy consumption, income, labor force, and CO2 emissions, but their study also fails to signify the EKC hypothesis in the USA. However, Halicioglu (2009) uncovered contradictory results for the case of Turkey, and Smyth (2013) classified data for each studying region accurately to avoid heterogeneity shocks for measuring the EKC hypothesis. Thus, the researcher postulates that aggregated dataset distracts the actual relation between economic growth and carbon emission across the regions. Thus, it seems that most researchers are ignoring to control the exogenous shocks as an economic indicator. In this regard, Rauf et al. (2018b); Sarwar et al. (2017) suggested that researcher need to use the individual country dataset in categorical structure with same econometric techniques over the regions to content the robust and reliable outcomes.

Xu and Lin, 2016a, Xu and Lin, 2016b detailed that factor of industrialization and economic growth is primarily accountable for carbon dioxide emission in China. However, the BRI projected schemes relieve to China, to transfer detrimental and carbon-emitting businesses and industries out of the country (Dombrowski, 2017). Furthermore, in BRI plans around 65 percent of entire energy production investments are capitalized in coal-based power generation plants, and only 1 percent of total funds are expended on renewable energy production. Thus far, China is constructing 240 coal-based energy generation plants in 25 BRI nations, which comprises 251 Gigawatts (GW) installed magnitude. Besides, Chinese companies have been specified their intention for initiating up to 92 add-ons such as coal-based power generation projects in 27 BRI economies (Dombrowski, 2017).

Fig. 1 exhibited a divergence scale of carbon emissions for selected BRI economies and entire world; trend line of carbon emissions in BRI countries is more straight than global trend, as it had been enlarging from past four decades.

The correspondent intensity of global CO2 emissions in BRI clustered nations is touching near to 61.4% in China (BP, 2017). Additionally, the share of CO2 emissions based on energy consumption in BRI grouped countries is approximately 80%, representing a dominant involvement in ecological deterioration. Based on these facts, it is tough to escape the inferences which BRI-intensive developmental projects are going to cause the detriment to atmospheric conditions, along with being advantageous for sustainable economic development. Moreover, a few investigators have been proclaimed that the global shifting BRI approach would harvest several sterns and unwanted impacts on hosting county’s natural resources, culture and ecology (Rauf et al., 2018a). However, it is developing one of the critical matters that are hindering the fruitful accomplishment of BRI projects in participated nations. Likewise, various socioeconomic variations from BRI projects will have critical implications for a project-holding country about its energy consumption accompanied by its CO2 emissions.

Based on the above highlights, Chinese economy’s energy mix and its relationship with rest of the world specifically in BRI initiative countries, the current study explores the carbon-energy and income function relationship on a broader scale. This present study explores the nexus between energy consumption, economic growth and environmental deterioration in BRI 65 countries by keeping in view their sustainability over the period of 1981–2016 in a panel framework. This study is different from previous documented study in the energy-environmental literature in two main fronts (i) In terms of scope. To the best of the authors knowledge this is probably the first study to explore the subject matter in broad blocs like; East Asia, South East Asia, South Asia, Central Asia, MENA, and European countries for a more robust empirical debate. Furthermore, this study is a complimentary in the existing knowledge by accounting for other covariates like; financial development, gross fixed capital formation, population growth and CO2 emission in 65 BRI listed countries. Therefore, the current study seeks to bridge this identified gap for BRI nations as a full and regional panel. Besides it addresses the challenges and prospects with regard to energy consumption sources, sustainable development and environmental degradation in selected countries to accomplish BRI aims and goals. (ii) The presents study also contributes on methodological front. It is known fact that in panel econometrics, where panel dataset is plagued with cross-sectional dependency, which previous studies fail to address. This study circumvents for cross-sectional dependence issues in its econometric modelling setting. It adopts most recent panel estimators; those renders more consistent and reliable coefficients which are worthwhile for decision road maps. This sort of studies is appropriate and, debatable and pertinent for environmental scientists and governmental officials in concerned countries as policy blueprint.

The rest of this study’s sections are structured as follows: Section 2 is about the research methodologies and data description. Subsequently, section 3 focuses on empirical results and discussions. Finally, conclusions, recommendations and policy implications are presented in Section 4.

Section snippets

Variables and data sources

The present study incorporated 65 BRI listed countries in Table 12 Appendix.A.3, further categorized into six regions according to their continental distribution (The World Bank Group, 2017). Outstretching the importance of economic actions in all segment of an economy is decisive for its progression and sustainability. However, those contributions may consist of capital investment, labor operations and massive energy sources which are obligatory to expedite such economic development.

The “Going

Empirical results and discussions

This study has operated a fitting methodological track to evaluate empirical estimates for harvesting the successful policy implications to achieve BRI goal lines in full and regional panels.

Conclusion, recommendations and policy implications

This present study explores the interaction between energy consumption, economic expansion, population growth, financial development and carbon emissions for 65 BRI countries over the period of 1981–2016 in a panel framework. This current study employed robust panel methodology that accounts for cross-sectional dependence and heterogeneity in the regional panels. The study fitted four functional form to operationalize study’s objectives. The energy consumption and economic growth in all

Funding

"The study is supported by the Startup Foundation for Introducing Talent of Nanjing University of Information Science and Technology, (NUIST), PR , China (EMP#003203); National Natural Science Foundation of China (No. 71673043, 71473070); National Social Science Fund; Ministry of Education of China (18VSJ035), Humanity and Social Science Youth foundation of Ministry of Education of China (Grant No. 18YJC790216) and Technology project of Headquarter of China’s State Grid Co., Ltd Contract No.

CRediT authorship contribution statement

Abdul Rauf: Conceptualization, Methodology, Software, Data curation, Writing - original draft, Software, Validation, Writing - review & editing. Xiaoxing Liu: Supervision. Waqas Amin: Visualization, Investigation. Obaid Ur Rehman: Data curation, Writing - original draft. Jinkai Li: Supervision. Fayyaz Ahmad: Data curation, Writing - original draft, Writing - review & editing. Festus Victor Bekun: Visualization, Investigation.

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.

Acknowledgment

The authors wish to thank to the responsible Editor and four anonymous reviewers for their constructive and valuable comments for enhancing the quality of our manuscript.

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