Threshold Effect of Trade on Climate Change in South Africa

Abstract

The relationship between trade and climate change is not a simple linear relationship. In this paper, using the threshold regression model, we estimated the effect of trade on climate change in South Africa. The paper applied the LM test to examine the nonlinear inference approach to test whether nonlinearity existed and if the threshold model was relevant to the study. The results show that when energy use is set as the threshold variable, the relationship between trade and climate change measured as methane is U-shaped. Also, in other models of GHG as climate change indicators, the results show that the effect of trade on climate change is not dynamic. This result supports the idea that high and low trade effects may have different impacts on climate change indicators. It is, therefore, recommended that all exporters in South Africa resort to more innovative environmental mechanisms to reduce the contribution to climate. The suggestion for future studies is to consider exports of different sectors to climate change. This approach will avoid the generalization of exporting firms as the worst emitters.