Spillover effects of trade openness on CO2 emissions in middle‐income countries: A spatial panel data approach

Abstract

AbstractThis paper empirically investigates the spatial effects of trade openness on CO2 emissions in a panel of 54 middle‐income countries over the period 1996–2013. It adopts a static spatial panel data approach as well as a dynamic spatial panel data model with common factors to address the problems of spatial dependency and spillover effects and to explain the non‐stationary diffusion process of CO2 emissions across middle‐income countries. The empirical results indicate that: (i) there is a spatial dependence in CO2 emissions across the sample of middle‐income countries; (ii) Both global common factors and local spatial dependence are important drivers of the propagation patterns of CO2 emissions over the selected time‐period; (iii) trade openness, per capita real income, urbanization and energy intensity are the main determinants of CO2 emissions; (iv) the direct effect of trade openness on CO2 emissions is significantly positive; and (v) the indirect effect of trade openness on CO2 emissions is so significantly negative to overcome the positive direct effect, which implies a negative and significant total effect. This study provides robust policy implications for the sample of middle‐income countries to help them improve environmental quality.