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

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.

What are the factors that determine differing levels of environmental quality? Evidence from Java and other islands in Indonesia

“…This idea leads to the hypotheses of the pollution halo and pollution haven through the EKC. According to Tran and Do (2021), trade openness and FDI caused environmental degradation in Malaysia and Indonesia in the long term but not in Thailand. Le et al (2016) found that trade openness impacted positively in high-income countries, but had a negative impact in low and middle income countries.…”

“…Trade openness and FDI in a country where investment circulates will influence the whole ecosystem (Le et al. , 2016; Oktavilia and Firmansyah, 2016; Tran and Do, 2021). This idea leads to the hypotheses of the pollution halo and pollution haven through the EKC.…”

“…This idea leads to the hypotheses of the pollution halo and pollution haven through the EKC. According to Tran and Do (2021), trade openness and FDI caused environmental degradation in Malaysia and Indonesia in the long term but not in Thailand. Le et al.…”