International trade and consumption‐based carbon emissions: Does energy efficiency and financial risk ensure sustainable environment?

Abstract

AbstractSustainable environment is one of the many desirable goals of the modern era, both in developed and developing economies. Energy efficiency (ENEF) with lower political, financial, and economic risk reduces consumption‐based carbon emissions (CCO2) and the decisive international trade and regulatory policy concerning environmental quality. The study examines the role of ENEF and financial risk on international trade‐CCO2 in BRICS countries panel data covering 1990–2019. This study incorporated four risk indexes: political risk (PRI), financial risk (FRI), economic risk (ERI), and composite risk index (CRI). These results of the panel cointegration test confirmed the existence of a cointegration relationship between CCO2, gross domestic product (GDP), exports (EX), imports (IM), ENEF, PRI, financial risk, economic risk, and CRI in the five models. The empirical results of the second‐generation cross‐section augmented autoregressive distributed lags model indicate that EX, ENEF, FRI, PRI, ERI, and CRI are negatively associated with CCO2 in the long run and short run in BRICS countries. Inversely, GDP and IM are positively linked to CCO2 in the long run and short run. The empirical findings of this study provide some policy implications; international trade contributes significantly to improving environmental quality by importing friendly environmentally technologies and less energy‐intensive use production inputs. On the other hand, less energy‐intensive industries for export purposes will support international trade's effective role in improving environmental quality and producing less CCO2 in BRICS economies.