The moderating effect of geopolitical risk in the nexus between trade openness, FDI, and carbon emissions in Saudi Arabia

Geopolitical Risk (GPR) can directly impact a country's environmental conditions and may also have indirect effects through Foreign Direct Investment (FDI) and trade. This study investigates the determinants of CO₂ emissions by examining the roles of income, Trade Openness (TO), FDI, and GPR in the Environmental Kuznets Curve (EKC) framework in Saudi Arabia from 1985 to 2023. Moreover, the moderating role of GPR is also investigated in the relationships between TO, FDI, and the environment. The results show that the EKC hypothesis is substantiated, and FDI and TO raise CO₂ emissions. Moreover, GPR is found to significantly increase emissions. Thus, GPR weakens institutional commitment to environmental regulations and deters clean energy investments. In addition, the interaction terms of GPR with TO and FDI reveal that under high geopolitical risk, the environmental impacts of TO and FDI are increased. Thus, geopolitical uncertainty amplifies the negative environmental externalities of globalization. The findings of this research suggest regulating TO, FDI, and GPR to enhance environmental sustainability.