Economic Complexity and Carbon Neutrality Targets in the GCC: Evidence from a Panel Threshold Model

Abstract

This study explores how economic complexity shapes carbon dioxide (CO₂) emissions in the Gulf Cooperation Council (GCC) countries from 1990 to 2022. Using a dynamic panel threshold model, we investigate whether rising economic complexity creates a turning point that changes how economic growth, energy use, trade openness, and renewable energy adoption affect environmental outcomes. The analysis uncovers a clear threshold level of economic complexity that divides the sample into two distinct regimes. In the low-complexity regime, CO₂ emissions are highly sensitive to economic growth and energy consumption, while neither renewable energy nor trade openness plays a meaningful role in reducing emissions. In contrast, once countries cross into the high-complexity regime, the picture changes: energy intensity declines, renewable energy becomes a powerful tool for lowering emissions, and trade openness supports cleaner production and greener technologies. This shift reflects a partial decoupling of economic growth from environmental damage. Overall, the findings highlight how structural transformation and technological upgrading can support climate goals in hydrocarbon-dependent economies. By prioritizing innovation, diversification, and strong policy frameworks, GCC countries can advance toward carbon neutrality while maintaining economic momentum.