Re-Imagining Trade Policy and Energy Efficiency: Groundbreaking Pathways to Strengthen Environmental Sustainability in South Korea

Abstract

This study explores the long-term interplay between trade policy, energy efficiency, and carbon dioxide (CO2) emissions in South Korea, using data spanning from 1985 to 2023. By applying the Fourier autoregressive distributed lag (FARDL) model, the analysis reveals that while trade liberalization initially leads to a 0.23% increase in CO2 emissions for each 1% rise in trade openness—driven by the energy demands of industrial expansion—integrating energy efficiency standards within trade agreements helps mitigate these effects over time; this results in a 0.26% reduction in emissions for every 1% improvement in energy efficiency. The study also highlights the dual role of foreign direct investment (FDI), which contributes to a short-term 0.08% rise in emissions but significantly reduces carbon intensity in the long term by facilitating the adoption of cleaner technologies. These findings underscore the importance of innovation and FDI in decoupling economic growth from environmental degradation. The study advocates for the incorporation of energy efficiency measures into trade agreements and the prioritization of green technologies, recommending strategies that could enable South Korea to reduce its CO2 emissions by up to 40% by 2030. This research positions South Korea as a key actor in achieving global climate goals while maintaining economic competitiveness, offering valuable insights into the balance between sustainable development and industrial growth.