Could information and communication technology (ICT) reduce carbon emissions? The role of trade openness and financial development

Abstract

Information and communication technology (ICT) is one of the fastest growing new industries in the world. This study aims to understand the nonlinear impact of ICT on carbon emissions more systematically. To this end, a threshold panel regression model is developed based on panel data of 92 countries. ICT is the explanatory variable, carbon emission is the explained variable, and trade openness and financial development are the threshold variables. The results show that: (i) When taking trade openness as threshold variable, both low- and high-income group have passed the double threshold test, the negative regression coefficient of ICT and carbon emissions firstly decreases, and then turns into positive effect when crossing the second threshold value in low-income group. While in high-income group, this effect shows a sustained growing positive trend. (ii) Taking financial development as threshold variable, this negative effect firstly turns positive which then increases when passing the second threshold in low-income group. While in high-income group, the positive impact of ICT on CO2 shows a sustained growth which is similar to the situation when trade openness is taken as threshold variable. (iii) Income levels are set as a categorical variable, the impact of ICT on CO2 presents a "U" shape under the influence of financial development and trade openness. The "U"-shaped turning point occurs in the low-income band and when the level of trade development and financial development is low.