Trade Liberalization, Energy Consumption and Pollution: An Empirical Investigation of Kuznets’ Hypothesis in 60 Developing Countries

International Journal of Economics and Management Studies

© 2019 by SSRG - IJEMS Journal

Volume 6 Issue 1

Year of Publication : 2019

Authors : Nashipu Thalut and Mark Tata Kelese

10.14445/23939125/IJEMS-V6I1P102

How to Cite?

Nashipu Thalut and Mark Tata Kelese, "Trade Liberalization, Energy Consumption and Pollution: An Empirical Investigation of Kuznets’ Hypothesis in 60 Developing Countries," SSRG International Journal of Economics and Management Studies, vol. 6,  no. 1, pp. 10-20, 2019. Crossref, https://doi.org/10.14445/23939125/IJEMS-V6I1P102

Abstract:

This study examined the long run relationship between trade liberalization, energy consumption, income per capita and environmental air quality proxied by carbon dioxide (CO2) emissions in metric tons. Income per capita and income per capita squared were included in the model to capture the Kuznets’ hypothesis. Cross sectional data was obtained from the world development indicators, 2010 spanning over the period 1960 -2004. Both Fixed and Random effects, robust Heteroscadacity estimation techniques were used to investigate the links amongst the variables for 60 developing countries. The result of the findings shows that energy consumption and trade liberalization in both the short and long run have a positive relationship with pollution for less developed countries using the pooled and heteroskedasticity panel corrected standard error estimates. The significance of the positive coefficients of energy consumption and trade liberalization on CO2 emissions suggests that an increase in the level of energy consumption and trade liberalization have unfavourable effects on environmental quality in less developed countries. The results of the study also showed that income has a negative relation with the measure of environmental quality meanwhile income squared has a positive link with CO2 emissions. The coefficient of the squared term of income per capita is positive for the least developing countries suggesting that the countries have not yet reached the threshold income level, where they will tend to give more priority to the protection of the environment. This means that an increase in income will lead to deterioration of the environment. The study recommends that developing countries can open their markets by uplifting tariffs and quotas to encourage trade whlist adopting strong pro-environmental policies.

Keywords:

Trade Liberalization, Energy Consumption, Pollution, Kuznets’ Hypothesis, Panel Co-integration.

References:

[1] Agras, J., & Chapman, D. (1999). A Dynamic Approach to the Environmental Kuznets Curve Hypothesis. Journal of Ecological Economics, 28(2), 267-277.
[2] Ang, J. B. (2008). Economic development, pollutant emissions and energy consumption in Malaysia. Journal of Policy Modeling, 30, 271-278.
[3] Antweiler, W., Copeland, R. B., & Taylor, M. (2001). Is free trade good for the environment? Review of Economics and Statistics, 80, 15-27.
[4] Asafu-Adjaye, J. (2000). The relationship between energy consumption, energy price and economic growth: time series evidence from Asian Developing Countries. Journal of Energy Economics, 22, 615-625.
[5] Baek, J., & Kim, H. S. (2011). Trade Liberalization, Economic Growth, Energy Consumption and the Environment: Time Series Evidence from G-20 Economies. Journal of East Asian Economic Integration, 15(1).
[6] Baek, J., Cho, Y., & Koo, W. W. (2009). The Environmental Consequences of Globalization: a Country-specific Time-series Analysis. Journal of Ecological Economics, 68, 2255-2264.
[7] Baltagi, B., & Wu, P. (1999). Unequal spaced panel regressions with AR(1) disturbance. Economic Theory, 15(6), 814-823.
[8] Ben-David, D., & Kimhi, A. (2000). Trade and the rate of income convergence. Cambridge, Mass., U.S.A: National Bureau of Economic Research.
[9] Bruesch, T. S., & Pagan, A. R. (1979). A simple test for heteroskedasticity and random Coefficient variation. Econometrica, 47, 1287-1294.
[10] Bruesch, T., & Pagan, A. (1980). The LM test and its applications to model specification in econometrics. Journal of Review of Economic Studies, 47, 239-253.
[11] Chen, P., & Gupta, R. (2006). An investigation of Openness and Economic Growth using Panel Estimation. University of Pretoria.
[12] Cole, D. H. (1999). New Forms of Private Property: Property Rights in Environmental Goods”, from: Bouckaert
B. and G. DeGeest (eds.) (2000). Encyclopedia of Law and Economics.
[13] Cole, M. A., & Anthony, J. R. (2000). The Uruguay Round and Air Pollution: Estimating the Composition, Scale and Technique Effects of Trade Liberalization. Journal of International Trade and Economic Development, 9(3), 339-354.
[14] Cosbey, A. (1999). The Kyoto Protocol and the WTO. International Institute for Sustainable Development and The Royal Institute of International Affairs.
[15] Cosbey, A. (2004). A capabilities approach to trade and sustainable development: Using Sen‟s conception of development to re-examine the debates. International Institute for Sustainable Development.
[16] Cosbey, A., & Cameron, J. (1999). Trade Implications of the Kyoto Protocol: Policy Matters. newsletter of the IUCN Commission for Environmental, Economic and Social Policy(4).
[17] Dasgupta, D. e. (2001, November). Pollution and Capital Markets in Developing Countries. Journal of Environmental Economics and Management, 42(3), 310-335.
[18] Dollar, D. a. (2004). Trade, Growth, and Poverty. The Economic Journal, 114(493), 22-49.
[19] Duncan, R., & Quang, D. (2003). Trade, Liberalisation, Economic Growth and Poverty Reduction Strategies. National Centre for Development Studies, The Australian National University .
[20] Engel, R. F. (1987). Co-integration and Error Correction: Representation, Estimation and Testing. Econometrica, 55, 251-279.
[21] Environmental impacts of a North American free trade agreement. (1991). National Bureau of Economic Research, 3914.
[22] Eusufzai, Z. (1996). Openness, Economic Growth and Development: Some Further Results. Journal of Economic Development and Cultural Change, 44(2), 333-338.
[23] FAO. (1997a). Review of the state of the world marine fishery resources. FAO Fisheries Circular, No 920: 173p.
[24] Friedl, B., & Getzner, M. (2003). Determinants of CO2 emissions in a small open economy. Journal of Ecological Economics, 45, 133-148.
[25] George, C. a. (2004). Trade and development: Assessing the impact of trade liberalisation on sustainable development. Journal of World Trade, 38(3), 441-470.
[26] Grossman, G. M., & Kreuger, A. B. (1993). Environmental impacts of a North American Free Trade Agreement: The Mexico-U.S. Free Trade Agreement, edited by P. Garber.
[27] Holtz-Eakin, D. a. (1995). Stoking the Fires? CO2 Emissions and Economic Growth. Journal of Public Economics, 57, 85-101.
[28] Im, K. S., Pesaran, M., & Shin, Y. (2003). Testing for Unit Roots in Heterogenous Panels. Journal of Econometrics, 115, 53-74.
[29] IPCC. (2001). Climate Change Mitigation: Contribution of the Working Group III to the Third Assessment Report of the Intergovernmental Panel on Climate Change. IPCC.
[30] Ivanova, I., & Arcelus, F. e. (1999). An assessment of the measurement properties of the human development index. Social Indicators Research, 46(2), 157-179.
[31] Kruger, A. (1997). Trade Policy and Economic Development: How We Learn. American Economic Review, 87(1), 1-22.
[32] Levin, A., Lin, C., & and Chu, C. (2002). Unit Root Tests in Panel Data: Asymptotic and Finite Sample Properties. Journal of Econometrics, 108, 1-24.
[33] Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, 61, 631-652.
[34] Matthew, A. (2000). Air Pollution and „Dirty‟ Industries: How and Why Does the Composition of Manufacturing Output Change with Economic Development? Journal of Environmental and Resource Economics, 7.
[35] Nguyen, H. T. (2010). Trade Liberalization, Privatization and Economic Growth.
[36] Pedroni, P. (1999). Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics, 61, 653-670.
[37] Pedroni, P. (2001). Purchasing power parity tests in cointegrated panels. Review of Economics and Statistics, 83, 727-731.
[38] Pedroni, P. (2004). Panel cointegration: Asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Econometric Theory, 20, 597-625.
[39] [35] Rodriguez, F., & Rodrik, D. (1999). Trade Policy and Economic Growth: A Sceptic‟s Guide to the cross-country Evidence. Centre for Economic Policy Research, 2143(22).
[40] Sadorsky, P. (2011). Trade and energy consumption in the Middle East. Journal of Energy Economics, 33(5), 739-749.
[41] Sagar, A. D., & Najam, A. (1998). The human development index: a critical review. Journal of Ecological Economics, 25(3), 249-264.
[42] Spanu, V. (2003). Liberalization of the international trade and economic growth: Implications for both developed and developing countries. MA Havard University: John F. Kennedy School of Governance.
[43] Suri, V., & Chapman, D. (1998). Economic growth, trade and energy: implications for the environmental Kuznets curve. Journal of Ecological Economics, 25, 195-208.