The effects of trade liberalization on environmental degradation

Abstract

This paper uses a threshold model to estimate the regime-specific marginal effect of trade liberalization and other determinants of environmental degradation in regimes with different levels of corruption. The results show that increasing trade liberalization leads to an increase in carbon dioxide (\(\mathrm{{CO}_{2}}\)) emissions in countries with a high level of corruption but to an decrease in countries with low corruption. A U-shaped relationship between \(\mathrm{{CO}_{2}}\) emissions and income exists in low-corruption countries but not in high-corruption countries. Our results also show that an increase in energy use per $1,000 in gross domestic product and fossil-fuel energy consumption will increase \(\mathrm{{CO}_{2}}\) emissions in any country. Moreover, increases in agricultural value and foreign direct investment can decrease environmental degradation in any country.