Does Green Financing Moderate the Effect of Trade Openness on Carbon Emissions in Emerging Countries?

Abstract

The environmental impact of trade openness has been a subject of extensive research, but gaps exist in understanding how green financing interact with trade openness on carbon emissions in emerging economies. Thus, this research aims to investigate the moderating effect of green financing on the relationship between trade openness and carbon emissions in emerging countries. The study uses a balanced panel dataset comprising BRIC and CIVETS countries spanning 1998 to 2022 years. Employing threshold effect model, we uncover involved patterns and critical thresholds that influence the environmental outcomes of trade dynamics. Finally, this paper employs different econometric models fortifying the methodological underpinning of the study. We find that green financing and trade openness lead to a reduction in carbon emissions as they are negatively associated with emissions. Further, our study finds that green financing interacted with trade openness to reduce carbon emissions because interaction of trade openness makes stronger the relationship to reduce emissions. When these two factors interact, their combined effect is even more potent. Additionally, this study identifies a threshold effect in the role of green financing, where its inhibitory impact on carbon emissions intensifies as the level of green financing increases, lead to greater reductions in emissions. This research contributes in identifying the moderating effects of green financing and the threshold effects on carbon emissions at different levels of green financing. Thus, this article implies that increasing both green financing and trade openness, along with understanding their interactive and threshold effects, is crucial for achieving substantial carbon emissions reductions.