Environmental Kuznets curve in an open economy: A bounds testing and causality analysis for Tunisia Muhammad Shahbaz a,n , Naceur Khraief b , Gazi Salah Uddin c , Ilhan Ozturk d,1 a Department of Management Sciences, COMSATS Institute of Information Technology, Lahore, Pakistan b Faculty of Economic Science and Management of Sousse, University of Sousse, Tunisia c Department of Management & Engineering, Linköping University, SE-581 83 Linköping, Sweden d Faculty of Economics and Administrative Sciences, Cag University, 33800 Mersin, Turkey article info Article history: Received 17 November 2012 Received in revised form 3 February 2014 Accepted 9 March 2014 Available online 30 March 2014 Keywords: EKC Energy Tunisia abstract The environmental Kuznets curve hypothesis posits that in the early stages of economic growth environmental degradation and pollution increase. However, as a nation reaches a certain level of income, measured in per capita terms, the trend reverses. The postulated relationship thus produces an inverted U-shaped curve. The topic has drawn much academic interest in the context of developed and emerging nations. The aim of this paper is to investigate the existence of environmental Kuznets curve (EKC) in case of Tunisia using annual time series data for the period of 1971–2010. The ARDL bounds testing approach to cointegration is applied to test long run relationship in the presence of structural breaks and vector error correction model (VECM) to detect the direction of causality among the variables. The robustness of causality analysis has been tested by applying the innovative accounting approach (IAA). The findings of this paper confirmed long run relationship between economic growth, energy consumption, trade openness and CO 2 emissions. The results also indicated the existence of EKC confirmed by the VECM and IAA approaches. The study has significant contribution for policy implications to curtail energy pollutants by implementing environment friendly regulations to sustain economic development in Tunisia. & 2014 Elsevier Ltd. All rights reserved. Contents 1. Introduction ........................................................................................................ 325 2. Tunisian context .................................................................................................... 326 3. Review of literature .................................................................................................. 327 4. Model construction and data collection .................................................................................. 329 5. Results and their interpretations ....................................................................................... 330 5.1. The VECM Granger causality analysis .............................................................................. 332 6. Conclusion and policy implications ..................................................................................... 334 References ............................................................................................................. 335 1. Introduction Over the past two decades, climate change due to global warming has risen in prominence as one of the most significant challenges facing the world. Theoretically the existence of an inverted-U shaped relationship between real GDP per capita and measures of environmental degradation such as SO 2 and/or CO 2 emissions is defined as the environmental Kuznets curve (EKC) hypothesis. The EKC hypothesis states that environmental degra- dation will initially increase as per capita income rises. At some point, however, the degradation will begin to decrease, forming an inverted U-shaped curve. In the context of climate change, this indicates that CO 2 emissions from a country will decrease as further economic growth occurs. The existence of EKC has been Contents lists available at ScienceDirect journal homepage: www.elsevier.com/locate/rser Renewable and Sustainable Energy Reviews http://dx.doi.org/10.1016/j.rser.2014.03.022 1364-0321/& 2014 Elsevier Ltd. All rights reserved. n Corresponding author. E-mail addresses: shahbazmohd@live.com (M. Shahbaz), nkhraief@gmail.com (N. Khraief), gazi.salah.uddin@liu.se (G.S. Uddin), ilhanozturk@cag.edu.tr (I. Ozturk). 1 Tel./fax: +90 324 6514828. Renewable and Sustainable Energy Reviews 34 (2014) 325–336