Carbon emissions, economic growth and trade: Empirical evidence from trading nations

Abstract

The article aims to develop an integrated relationship between carbon emissions, energy consumption, economic growth and trade for the top ten trading countries in the world for a period of nineteen years, 2000‐2018. The results of panel data indicate a significant relationship between carbon emissions, energy consumption, economic growth and trade both in the short and long run. It is seen that a bidirectional causality between carbon emissions, trade and growth is present. Empirical results of the analysis in this article indicate that an increase in carbon emissions leads to an increase in the economic growth rate. The article also finds a positive relationship between carbon emissions and energy consumption. The findings also show that the emerging and newly industrialized countries place more emphasis on enhancing their trade positions, while developed countries tend to focus more on the overall economic growth than on trade. A major limitation of the study is that the data for energy consumption and carbon emissions is for the economy as a whole and not only for manufacturing. An incentive structure for reducing carbon emissions for the selected countries can be adopted along with the focus on adopting clean energy. The article’s findings add to the existing literature as comparatively few studies have been conducted with trade as an indicator and at the cross-country level for determining the empirical relationship between energy consumption, carbon emissions, growth and trade.