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Revisiting the emissions-energy-trade nexus: evidence from the newly industrializing countries

Abstract

This paper applies Pedroni’s panel cointegration approach to explore the causal relationship between trade openness, carbon dioxide emissions, energy consumption, and economic growth for the panel of newly industrialized economies (i.e., Brazil, India, China, and South Africa) over the period of 1970–2013. Our panel cointegration estimation results found majority of the variables cointegrated and confirm the long-run association among the variables. The Granger causality test indicates bidirectional causality between carbon dioxide emissions and energy consumption. A unidirectional causality is found running from trade openness to carbon dioxide emission and energy consumption and economic growth to carbon dioxide emissions. The results of causality analysis suggest that the trade liberalization in newly industrialized economies induces higher energy consumption and carbon dioxide emissions. Furthermore, the causality results are checked using an innovative accounting approach which includes forecast-error variance decomposition test and impulse response function. The long-run coefficients are estimated using fully modified ordinary least square (FMOLS) method, and results conclude that the trade openness and economic growth reduce carbon dioxide emissions in the long run. The results of FMOLS test sound the existence of environmental Kuznets curve hypothesis. It means that trade liberalization induces carbon dioxide emission with increased national output, but it offsets that impact in the long run with reduced level of carbon dioxide emissions.

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Notes

  1. 1.

    The General Agreement on Trade and Tariffs (GATT) came in to force on January 1, 1948.

  2. 2.

    The World Trade Organization (WTO) commenced on January 1, 1995 under Marrakesh Agreement and replaced GATT.

  3. 3.

    BICS (Brazil, India, China, South Africa).

  4. 4.

    North American Free Trade Agreement (NAFTA).

  5. 5.

    Also known as Rio Summit organized by the United Nations at Rio de Janeiro (Brazil) from June 3–14, 1992.

  6. 6.

    These three categories were identified by Grossman and Krueger (1991) and explained by Lopez (1994) that growth in the economy can be observed due to the prevalence of these effects.

  7. 7.

    BICS group is comprises of four newly industrialized economies: Brazil, India, China, and South Africa.

  8. 8.

    Clean Clean Development Mechanism (SDM) and Joint Implementation (JI) are designed under Kyoto Protocol as emission reduction strategy through international technology diffusion from industrialized to industrializing countries. For more insights regarding SDM and JI, please refer to Youngman et al. (2007), Dechezleprêtre et al. (2008)), and Ahmed and Long (2013b).

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Correspondence to Khalid Ahmed.

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Ahmed, K., Shahbaz, M. & Kyophilavong, P. Revisiting the emissions-energy-trade nexus: evidence from the newly industrializing countries. Environ Sci Pollut Res 23, 7676–7691 (2016). https://doi.org/10.1007/s11356-015-6018-x

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Keywords

  • Newly industrialized economies
  • Gross domestic production (GDP)
  • Carbon dioxide emissions
  • Trade liberalization
  • Energy consumption