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Does trade openness affect CO2 emissions: evidence from ten newly industrialized countries?
Shun Zhang1,2, Xuyi Liu1, Junghan Bae3
1School of International Economics and Business, Yeungnam University, 280 Daehak-Ro, Gyeongsan, Gyeongbuk, South Korea.
Summary
This study confirms the Environmental Kuznets Curve (EKC) hypothesis for ten newly industrialized countries (NICs-10). Trade openness reduces CO2 emissions, while economic growth and energy consumption increase them.
Area of Science:
- Environmental Economics
- Econometrics
- Sustainable Development
Background:
- The Environmental Kuznets Curve (EKC) hypothesis suggests environmental degradation initially worsens with economic growth but improves at higher income levels.
- Understanding the relationship between economic development, trade, energy consumption, and CO2 emissions is crucial for environmental policy.
Purpose of the Study:
- To empirically test the existence of the EKC hypothesis in ten newly industrialized countries (NICs-10).
- To investigate the impact of trade openness, real GDP, and total primary energy consumption on CO2 emissions.
- To analyze both short-run and long-run causal relationships between these variables.
Main Methods:
- Time-series analysis using data from 1971 to 2013 for NICs-10.
- Econometric modeling to assess the EKC hypothesis and the effects of trade openness, real GDP, and energy consumption.
- Granger causality tests and Error Correction Models (ECTs) to determine short-run and long-run linkages.
Main Results:
- The study supports the existence of the EKC hypothesis in the selected countries.
- Trade openness demonstrates a significant negative effect on CO2 emissions.
- Real GDP and energy consumption show a significant positive effect on CO2 emissions.
- Short-run analysis reveals feedback between real GDP and trade, and unidirectional causality from energy to emissions and trade.
- Long-run analysis indicates feedback loops between emissions, real GDP, and trade openness, with energy Granger-causing all other variables.
Conclusions:
- Policy recommendations emphasize expanding trade openness in NICs-10 to mitigate CO2 emissions and foster economic growth.
- The findings suggest that trade liberalization can be a tool for environmental improvement alongside economic development.
- Sustainable energy policies are vital, given energy's strong causal link to emissions and economic activity.
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