Exploring the asymmetries between trade and consumption-based carbon emissions: evidence from NPARDL approach.

Abstract

Global warming is one of the most serious environmental problems that the world faces today. Millions of human lives are at risk, hence the subject has gained enormous attention within academia and the research arena. Literature shows that the primary cause of global climate change or global warming is carbon (CO2) emissions. In the literature, a number of studies have investigated the factors affecting the overall level of carbon emission. However, in recent years, consumption-based carbon emissions have occupied the center stage in research related to international trade and environmental concerns. The recently emerged idea of carbon emissions based on consumption differs from conventional accounting (i.e., carbon emissions based on production) in that it highlights the importance of international trade in national carbon emissions. Unlike the previous studies that examined the symmetric effect of international trade on consumption-based carbon emission, the present study examines the asymmetric effect of international trade on consumption-based carbon emissions of emerging economies. To get empirical estimates, the study applies a Nonlinear Panel Autoregressive Distributive Lag (NPARDL) approach. The estimates show that both in the short and long run, a positive shock in exports significantly reduces consumption-based carbon emissions in developing economies. Whereas, a negative shock in exports has an insignificant impact on carbon emissions. For imports, the results show that, over time, positive shocks in imports significantly increase consumption-based carbon emissions, while the impact of negative shocks is insignificant. Finally, it is recommended for the policymakers to target the export industries for relevant policy interventions, which are less polluting but crucial for economic growth.