LINKING ECONOMIC COMPLEXITY AND THE ENVIRONMENT: THE CASE OF THE EUROPEAN UNION

Environmental damage has been a topic of great importance to the European Union since the European Green Deal was approved in 2020, with the goal of Europe becoming the first continent with net-zero emissions by 2050. Economic complexity is a concept that has gained relevance because it explains the productive structure of countries. There is literature that links economic complexity with environmental degradation. There is a gap of knowledge regarding how the productive structure of the European Union member states affects the environment. The paper aims to quantify the effect of economic complexity on the environment at the European Union through a nonlinear function. To achieve this, a panel data model with fixed effects was used, as well as a nonlinear functional model to quantify the effect of the Economic Complexity Index on CO2 emissions. The results show that the relationship between the Economic Complexity Index and CO2 emissions is U-shaped, and the same holds whether fossil fuels or the energy intensity index are used as measures of environmental degradation.