The environmental effects of trade openness in developing countries: conflict or cooperation?

Abstract

Identifying environmental consequences of international trade has a crucial role in constructing and planning strategies of any country, especially in developing countries that are currently witnessing a significant increase in trade openness; however, little efforts are made to investigate the environmental consequences of trade openness. The paper attempts to investigate the dynamic relationship between trade openness and environmental pollutants incorporating potential factors affecting environmental quality in 66 developing economies over the period 1971-2017. This article employs the powerful approach two-step generalized method of moment's estimators with a finite sample correction to obtain more accurate inference. The key empirical results are as follows: (1) trade openness may be harmful for the environment while confirming the existence of an environmental Kuznets curve hypothesis. (2) An increase in pollutants, namely carbon dioxide emissions, ambient particulate matter and nitrous oxide emissions in the previous period, is associated with a rise in pollutants in the future suggesting that if no action in reducing pollutants is taken, environmental quality is worse. (3) Energy consumption, financial development and industrialization have a significant contribution to deteriorating environment. The implications of these results also are discussed and proposed for developing economies in this research.