Trade openness–carbon emissions nexus: The importance of turning points of trade openness for country panels

Abstract

This paper explores the relationship between trade openness and CO2 emissions by incorporating economic growth as an additional and potential determinant of this relationship for three groups of 105 high, middle and low income countries. We apply the Pedroni (1999) and Westerlund (2007) panel cointegration tests and find that the three variables are cointegrated in the long run. Trade openness impedes environmental quality for the global, high income, middle and low income panels but the impact varies in these diverse groups of countries. The panel VECM causality results highlight a feedback effect between trade openness and carbon emissions at the global level and the middle income countries but trade openness Granger causes CO2 emissions for the high income and low income countries. Policy implications are also provided.