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Environmental Effects of Trade Openness in the Presence of Structural Breaks: New Insights from 5-ASEAN Developing Countries

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Abstract

A number of studies have investigated the environmental consequences of international trade. However, they have neglected comprehensively exploring the trade-environment nexus in the presence of structural breaks. This paper attempts to empirically analyse the effect of trade openness on carbon dioxide emissions and nitrous oxide emissions as proxies of environmental degradation in five ASEAN developing countries individually, namely, Vietnam, Thailand, Malaysia, Indonesia, and the Philippines. The Clemente-Montanés-Reyes unit root test with unknown structural breaks, the autoregressive distributed lag, the error correction models, and the VECM Granger causality with structural breaks are employed. Empirical results vary according to the country and pollutant. More precisely, results indicate that trade openness causes environmental degradation in Malaysia and Indonesia due to increasing carbon dioxide emissions in the long run. The existence of the environmental Kuznets curve hypothesis is validated for Vietnam and Indonesia. Furthermore, there is compelling evidence that higher openness to trade is linked to lower carbon emissions in Vietnam and the Philippines in the short run, yet no relationship is found in Thailand and Malaysia. The results also indicate that trade openness appears to have a beneficial effect on the environment by reducing nitrous oxide emissions in Thailand, whereas it has a deferential effect in the Philippines in the long run. Regarding causality analysis, findings show that several causal relationships exist between the interested variables. The estimated economic modelling also passes all diagnostic tests. The results are also checked by incorporating several determinants. Clear policy recommendations are also provided for solving the trade-environmental nexus.

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Acknowledgements

We wish to thank the Editorial Board of the Journal for their time and support. The authors are also grateful to anonymous reviewers for their valuable comments and suggestions, which directly helped us to improve the quality of the research. We also have benefitted from helpful comments and advice from Hoang Viet Dinh, Prof. Quyet Van Tran and Hao Thi Phuong Nguyen. Support from TUEBA is gratefully acknowledged. Usual caveats apply.

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Authors and Affiliations

  1. Faculty of Economics, TNU - University of Economics and Business Administration, Thai Nguyen, Vietnam

    Nguyen Van Tran

  2. Faculty of Marketing – Commerce and Tourism, TNU - University of Economics and Business Administration, Thai Nguyen, Vietnam

    Linh Thi Thuy Do

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  1. Nguyen Van Tran
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  2. Linh Thi Thuy Do
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Correspondence to Nguyen Van Tran.

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Highlights

• This study examines the trade-environmental nexus of five ASEAN developing countries.

• The autoregressive distributed lag and error correction model with structural breaks are employed.

• The results vary according to the country and pollutant.

• Openness to trade deteriorates the environment in Malaysia and Indonesia due to rising carbon dioxide emissions.

• Trade openness exerts a detrimental impact on the environment in the Philippines due to increasing nitrous oxide emissions.

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Tran, N.V., Do, L.T.T. Environmental Effects of Trade Openness in the Presence of Structural Breaks: New Insights from 5-ASEAN Developing Countries. Environ Model Assess 26, 677–693 (2021). https://doi.org/10.1007/s10666-021-09784-4

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  • DOI: https://doi.org/10.1007/s10666-021-09784-4

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