How Does Trade Openness Affect Carbon Emission? New International Evidence

Abstract

The nexus between trade openness and carbon dioxide (CO2) emissions remains unsettled in the existing literature. Using a balanced panel dataset for 76 countries from 1990 to 2019, this study empirically investigates the non-linear relationship between trade openness and CO2 emissions. Given the potential cross-sectional interdependence in the panel, we employ the system-generalised method of moments. We also conduct a mediating effect analysis to explore potential mediation effect in the trade openness-CO2 nexus. Finally, the regional heterogeneity is discussed. The empirical results revealed an inverted U-shaped relationship between trade openness and CO2 emissions, indicating that CO2 emissions increase initially with an expansion of trade openness, then decline after trade openness crossing the turning point. Furthermore, three mediation effects (i.e. scale effect, technique effect and composition effect) exist in the nexus between trade openness and CO2 emissions. Additionally, the impact of trade openness is heterogeneous across different regions. The main research results show that technique spillover is an important way to achieve a win-win situation in emission reduction and trade openness.