Trade, energy consumption, economic growth, and environmental quality: an empirical evidence from D-8 and G-7 countries.

Abstract

Since both developed and developing economies are experiencing economic and environmental problems, exploring the linkages between economic and environmental parameters in a comparative setting is desirable. This study investigates the effects of energy consumption along with economic growth and trade on environmental quality for D-8 and G-7 countries over the period 1980-2019. Further, unlike prior studies which focus on only aggregate energy consumption, this study employs disaggregate forms of energy consumption using extended environmental Kuznets curve (EKC) framework and employing second-generation panel time series analysis. The models are estimated using fully modified least squares (FMOLS), dynamic ordinary least squares (DOLS), and heterogeneous panel estimators. Finally, to verify the causality among the study variables, the Dumitrescu and Hurlin (2012) causality test is applied. The findings reveal that economic growth, aggregate and disaggregate energy consumptions (oil, coal, gas), and trade exacerbate environmental quality in D-8 countries, while income and trade improve it in G-7 economies. However, oil, coal, and gas usage are detrimental to environmental quality in G-7 economies. Further, this study extends the literature on the EKC by validating it for D-8 economies while rejecting it for G-7 countries. Both groups of countries need to adopt green technology and sustainable development patterns. The D-8 economies need to reform their trade policy to support environmental-friendly trade while G-7 economies need to control emissions associated with further growth by limiting the use of non-renewable energy sources.