Economic complexity–carbonization nexus in the European Union: A heterogeneous panel data analysis

ABSTRACT

The economic contributions of economic complexity, characterized by knowledge, sophistication, and diversification, are well documented. However, its decarbonization impacts remain unclear and need more research, especially in complex economies. Therefore, this study tests the economic complexity effects on carbon dioxide (CO₂) productivity (output per emissions) and CO₂ intensity (emissions per capita) for 22 European Union countries from 1995 to 2018. The study follows a cointegration framework considering heterogeneity and cross-country dependence diagnostics. Augmented mean group estimates confirm that higher economic complexity reduces CO₂ productivity and increases CO₂ intensity. Additionally, energy efficiency (output per energy supply) improvement is found as a key driver of decarbonization. Higher per capita income intensifies emissions, but non-linear income effects do not reveal an environmental Kuznets curve pattern. Deindustrialization improves decarbonization, while environmental tax revenues have insignificant influences. A bidirectional causality is established between CO₂ intensity and economic complexity. Overall evidence suggests policies favoring energy-efficient green complexity.

KEYWORDS:

• Economic complexity
• carbonization
• CO₂ productivity
• CO₂ intensity
• environmental Kuznets curve
• European Union

Disclosure statement

No potential conflict of interest was reported by the author(s).

Availability of data and materials

The datasets used and/or analyzed in the study are available in the [Google-Drive] repository [https://docs.google.com/spreadsheets/d/1ZQwXvmFSeMp8rdU8inOnc0HIIJ9UbbQS/edit?usp=sharing&ouid=105583779773111291533&rtpof=true&sd=true]. Unreported additional results/statistics are also available from the authors upon request.

Additional information

Funding

This research received no external funding.