Effect of urbanization and international trade on CO2 emissions across 65 belt and road initiative countries

Abstract

This paper mainly investigates the impact of urbanization and international trade on CO2 across 65 Belt and Road Initiative (BRI) Countries from 2000 to 2016. The non-linear nexus between urbanization and CO2 emissions is explored through panel quantile regression. Different effects of exports and imports on CO2 is analyzed and compared across different income groups. 2SLS (2-stages least square) regression is employed to handle the endogeneity issue. The results confirmed an inverted U-shaped relationship between urbanization and CO2 emissions only in high income group, which is consistent with the theory of ecological modernization. EKC (Environmental Kuznets Curve) hypothesis is confirmed only in upper-middle and high income groups. Foreign direct investment increased CO2 emissions, which supports “pollution haven” hypothesis. Exports decreased carbon emissions in low and high income countries, while increased it in lower-middle countries. Imports increased carbon emissions in low income countries, while decreased it in middle and high income countries. Our findings suggest that promoting industry agglomeration during urbanization and enhancing voluntary disclosure of environmental information of FDI firms can reduce carbon emissions.