Economic Complexity and Environmental Sustainability in Eastern European Economy: Evidence from Novel Fourier Approach

Abstract

Globally, economies have become complex and new technologies have transformed and facilitated the modernization of economies. In the previous literature, economic complexity approach has become one of the popular tools in the development and innovation studies of economic geography. Researchers have found that green technology and eco-innovation approaches should be used to decisively reduce the effects of carbon emission on the environment. However, debates about the impact of economic complexity on environment remain unsettled since some emerging production technologies have far-reaching pollution effects. This study explored the impacts of economic complexity on environmental sustainability in Turkey using the novel Fourier-based approaches, namely: Fourier Augmented Dickey-Fuller (FADF) and Fourier autoregressivedistributed lag (FARDL) models. The Fourier-based approaches indicated that all variables (economic complexity index (ECI), GDP, energy consumption, and CO2 emission (CO2E)) are cointegrated in the long run. Additionally, the FARDL model implied that (i) in the long run, the effect of ECI (as a proxy for economic complexity), GDP (as a proxy for economic growth), and energy consumption on CO2E (as a proxy for environmental quality) is important; (ii) economic complexity decreases environmental degradation in Turkey; and (iii) economic growth and energy consumption negatively affect environmental quality. The results also showed that economic complexity could be used as a policy tool to tackle environmental degradation. The findings also revealed that the fossil fuel-based economy will continue to expand and undermine Turkey's efforts to meet its net zero emission target by 2053. Therefore, policy-makers should take actions and establish diversified economic, environmental, and energ strategies. For policy insights, the Turkish governments can use the combination of tax exemptions and technical support systems to support knowledge creation and the diffusion of environmentally friendly technologies The governments can also impose strict environmental regulations on the knowledge development phases.