Does trade openness convey a positive impact for the environmental quality? Evidence from a panel of CIS countries

Abstract

The Environmental Kuznets Curve hypothesis suggests that sustainable economic growth can be achieved in transitional countries after the threshold level of per capita income. And trade openness is also one of the critical factors to help transitional economies reduce carbon dioxide emissions and economic growth simultaneously through the combination of scale, composition, and technique effects. This paper is designed to explore the effect of trade openness on the environmental quality and investigate the existence of the environmental Kuznets curve hypothesis for a panel of CIS countries over the period of 2000-2013. The two-equation model is used to estimate the direct effect of trade openness on CO2 emissions and the indirect effect via per capita income. The instrumental variable techniques are employed to consider for endogeneity of per capita income and trade openness to estimate the indirect effect, and GLS analysis is conducted to estimate the direct effect of trade openness on CO2 emissions. The result shows that trade openness increases CO2 emissions directly while indirectly decreasing it due to its negative effect on per capita income. This study provides multiple policy implications for the sample countries to help them achieve sustainable economic growth while improving environmental quality.