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Trade Openness and Carbon Emissions: Evidence from Central and Eastern Europe

Njindan Iyke, Bernard and Ho, Sin-Yu (2017): Trade Openness and Carbon Emissions: Evidence from Central and Eastern Europe.

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Abstract

Using a composite trade share measure of trade openness, we examined the effects of trade openness on carbon dioxide emission for a sample of 17 Central and Eastern European (CEE) countries over the period 1994 to 2014. We found that high trade openness is associated with low carbon emission in the long run. When compared with the simple measure of trade openness (i.e. total trade as a percentage of GDP), the composite measure indicates that the effect of openness on carbon emission in the long run is smaller in absolute terms. Moreover, while high openness is associated with high emission in the short run using the simple measure, this association is non-existent when using the composite measure. These findings are robust to two historically closed economies and the recent Global Financial Crisis. When testing the Environmental Kuznets Curve (EKC) hypothesis using the composite measure, we found evidence in support of this in the long run. This finding connotes that high openness is associated with low emission in the long run, but up to a certain level of openness. That is, there is a turning point for openness beyond which further openness may spur high emission. Overall, our findings clearly suggest, to a large extent, that the measure of trade openness matters.

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