Trade openness and green technology: The extent of trade openness and environmental policy matter

Abstract

Much effort has been devoted to understanding how trade openness is linked to technological progress. Less documented is the effect on green technology, which is particularly important as it is green technological progress that alleviates environmental degradation while improving economic growth. To fill the void, this paper empirically examines whether trade openness drives green technology development and whether the effect depends on the extent of trade openness and environmental policy stringency. In a sample covering both advanced and developing countries, the paper finds that green technology first decreases and then rises with increased trade openness, meaning that a sufficient level of trade openness is required for green technological progress. Tighter environmental policy is also found to weaken the beneficial effect of trade openness on green technological progress, implying that lax environmental policy creates a better environment for more open countries to develop green technology. However, these effects vary across countries, depending on the origin and destination of trade.