Can green trade save the environment? Introducing the Green (Trade) Openness Index.

Abstract

Environmental degradation is one of the main drivers of climate change. One of the most broadly accepted tools to minimize environmental degradation is the introduction of "green products". This paper introduces the "Green Trade Openness Index" to (a) measure the importance of green products in a region and (b) revisit the trade-environment nexus in a sample study of 31 OECD countries over the period 2007-2017. The empirical analysis confirms the environmental Kuznets curve hypothesis and - more importantly - demonstrates for the first time that the presence of green products in a country's trade basket reduces that country's ecological footprint. This is essential information for practitioners and policy makers looking for a pathway to sustainable development. Finally, the novel index creates opportunities for future research, as the index can be used as explanatory variable in different research questions and fields of research.