The nexus of sectoral-based CO2 emissions and fiscal policy instruments in the light of Belt and Road Initiative

Climate change due to global warming is becoming a major global issue over the past few decades. The emission of carbon dioxide (CO2) and other greenhouse gasses cause global warming. Most carbon emissions come from energy sectors, whereas transportation, industrial, and residential sectors are among the chief contributors. The present study investigates the effect of fiscal policy instruments, economic development, and foreign direct investment (FDI) on the sectoral emissions in Belt and Road Initiative (BRI) countries. The data used in this study is taken from the World Development Indicators (WDI) for the period between 2000 and 2018. Dynamic ordinary least squares (DOLS) and fully modified ordinary least squares (FMOLS) have been used to analyze the long-run impact of fiscal policy instruments, economic development, and FDI on CO2 emissions from transportation, energy, and industrial sectors. Furthermore, the pairwise Dumitrescu and Hurlin panel causality test was used to authorize the causal relationship among the variables under consideration. The results reveal that fiscal policy instruments, per capita gross domestic product, FDI, and CO2 emissions show a strong correlation in the industrial, electrical, and transportation sectors. Furthermore, it is shown that public spending is a more reliable tool to reduce CO2 emissions in the transportation and industrial sectors in the BRI region. This study provides useful information for policy-makers on taking preventive and corrective measures to reduce CO2 emissions in different sectors and promote sustainable development.