Trade Openness and Carbon Emissions: Evidence from Central and Eastern European Countries

Sin-Yu Ho and Bernard Njindan Iyke
  • Corresponding author
  • Department of Finance, Deakin University, 221 Burwood Highway, Melbourne Burwood Campus, Burwood, Victoria, Australia
  • Email
  • Search for other articles:
  • degruyter.comGoogle Scholar


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 suggest, to some extent, that the measure of trade openness matters.

  • Ahmed, K., M. Shahbaz and P. Kyophilavong (2016): Revisiting the Emissions-Energy-Trade Nexus: Evidence from the Newly Industrializing Countries, Environmental Science and Pollution Research 23(8), 7676–7691.

  • Alcalá, F. and A. Ciccone (2004): Trade and Productivity, Quarterly Journal of Economics 119(2), 613–646.

  • Al-Mulali, U., B. Saboori and I. Ozturk (2015): Investigating the Environmental Kuznets Curve Hypothesis in Vietnam, Energy Policy 76, 123–131.

  • Anderson, J. E. and J. P. Neary (1992): Trade Reform with Quotas, Partial Rent Retention, and Tariffs, Econometrica 60(1), 57–76.

  • Anderson, K. and S. Nelgen (2012): Agricultural Trade Distortions during the Global Financial Crisis, Oxford Review of Economic Policy 28(2), 235–260.

  • Andonova, L. B. (2003): Openness and the Environment in Central and Eastern Europe: Can Trade and Foreign Investment Stimulate Better Environmental Management in Enterprises?, The Journal of Environment and Development 12(2), 177–204.

  • Antweiler, W., B. R. Copeland and M. S. Taylor (2001): Is Free Trade Good for the Environment?, American Economic Review 91(4), 877–908.

  • Bombardini, M. and B. Li (2016): Trade, pollution and mortality in china. National Bureau of Economic Research, Working Paper No. 22804.

  • Catao, L. A. and S. N. Solomou (2005): Effective Exchange Rates and the Classical Gold Standard Adjustment, The American Economic Review 95(4), 1259–1275.

  • Catao, L. A. and M. E. Terrones (2005): Fiscal Deficits and Inflation, Journal of Monetary Economics 52(3), 529–554.

  • Cavallo, E. A. and J. A. Frankel (2008): Does Openness to Trade Make Countries More Vulnerable to Sudden Stops, or Less? Using Gravity to Establish Causality, Journal of International Money and Finance 27(8), 1430–1452.

  • Chang, R., L. Kaltani and N. V. Loayza (2009): Openness Can Be Good for Growth: The Role of Policy Complementarities, Journal of Development Economics 90(1), 33–49.

  • Cherniwchan, J., B. R. Copeland and M. S. Taylor (2017): Trade and the Environment: New Methods, Measurements, and Results, Annual Review of Economics. doi:.

    • Crossref
    • Export Citation
  • Chintrakarn, P. and D. L. Millimet (2006): The Environmental Consequences of Trade: Evidence from Subnational Trade Flows, Journal of Environmental Economics and Management 52(3), 430–453.

  • Chor, D. and K. Manova (2012): Off the Cliff and Back? Credit Conditions and International Trade during the Global Financial Crisis, Journal of International Economics 87(1), 117–133.

  • Chudik, A., K. Mohaddes, M. H. Pesaran and M. Raissi (2017): Is There a Debt-Threshold Effect on Output Growth?, Review of Economics and Statistics 99(1), 135–150.

  • Cole, M. A. (2004): Trade, the Pollution Haven Hypothesis and the Environmental Kuznets Curve: Examining the Linkages, Ecological Economics 48(1), 71–81.

  • Copeland, B. R. and M. S. Taylor (1995): Trade and Transboundary Pollution, The American Economic Review 85(4), 716–737.

  • Copeland, B. R. and M. S. Taylor (2005): Free Trade and Global Warming: A Trade Theory View of the Kyoto Protocol, Journal of Environmental Economics and Management 49(2), 205–234.

  • Dean, J. M. (2002): Does Trade Liberalization Harm the Environment? A New Test, Canadian Journal of Economics/Revue Canadienne D’économique 35(4), 819–842.

  • Dinda, S. (2004): Environmental Kuznets Curve Hypothesis: A Survey, Ecological Economics 49(4), 431–455.

  • Dollar, D. and A. Kraay (2003): Institutions, Trade, and Growth, Journal of Monetary Economics 50(1), 133–162.

  • Edwards, S. (1998): Openness, Productivity and Growth: What Do We Really Know?, Economic Journal 108(447), 383–398.

  • Frank, M. W. (2009): Inequality and Growth in the United States: Evidence from a New State‐Level Panel of Income Inequality Measures, Economic Inquiry 47(1), 55–68.

  • Frankel, J. A. (2009): Environmental Effects of International Trade. Faculty Research Working Paper Series No. RWP09-006. Harvard University, Cambridge, MA.

  • Frankel, J. A. and A. Rose (2005): Is Trade Good or Bad for the Environment? Sorting Out the Causality, The Review of Economics and Statistics 87(1), 85–91.

  • Fratzscher, M. (2012): Capital Flows, Push versus Pull Factors and the Global Financial Crisis, Journal of International Economics 88(2), 341–356.

  • Friedman, M. (1937): The Use of Ranks to Avoid the Assumption of Normality Implicit in the Analysis of Variance, Journal of the American Statistical Association 32(200), 675–701.

  • Grossman, G. M. and A. B. Krueger (1991): Environmental impacts of a North American free trade agreement. National Bureau of Economic Research, Working Paper No. 3914.

  • Harrison, A. (1996): Openness and Growth: A Time-Series, Cross-Country Analysis for Developing Countries, Journal of Development Economics 48(2), 419–447.

  • Hossain, M. S. (2011): Panel Estimation for CO 2 Emissions, Energy Consumption, Economic Growth, Trade Openness and Urbanization of Newly Industrialized Countries, Energy Policy 39(11), 6991–6999.

  • Iyke, B. N. (2017): Does Trade Openness Matter for Economic Growth in the CEE Countries?, Review of Economic Perspectives 17(1), 3–24.

  • Jaffe, A. B., S. R. Peterson, P. R. Portney and R. N. Stavins (1995): Environmental Regulation and the Competitiveness of US Manufacturing: What Does the Evidence Tell US?, Journal of Economic Literature 33(1), 132–163.

  • Jalil, A. and S. F. Mahmud (2009): Environment Kuznets Curve for CO 2 Emissions: A Cointegration Analysis for China, Energy Policy 37(12), 5167–5172.

  • Kao, C. (1999): Spurious Regression and Residual-Based Tests for Cointegration in Panel Data, Journal of Econometrics 90(1), 1–44.

  • Kim, D. H. and S. C. Lin (2010): Dynamic Relationship between Inflation and Financial Development, Macroeconomic Dynamics 14(03), 343–364.

  • Krueger, A. O. (1978): Liberalization Attempts and Consequences. Ballinger, Cambridge.

  • Lau, L. S., C. K. Choong and Y. K. Eng (2014): Investigation of the Environmental Kuznets Curve for Carbon Emissions in Malaysia: Do Foreign Direct Investment and Trade Matter?, Energy Policy 68, 490–497.

  • Leamer, E.E. (1988): “Measures of Openness,” NBER Chapters, in: Robert E. Baldwin (ed.) Trade Policy Issues and Empirical Analysis. National Bureau of Economic Research, 145–204.

  • Lee, H. Y., L. A. Ricci and R. Rigobon (2004): Once Again, Is Openness Good for Growth?, Journal of Development Economics 75(2), 451–472.

  • Levinson, A. (2009): Technology, International Trade, and Pollution from US Manufacturing, The American Economic Review 99(5), 2177–2192.

  • Ling, C. H., K. Ahmed, R. B. Muhamad and M. Shahbaz (2015): Decomposing the Trade-Environment Nexus for Malaysia: What Do the Technique, Scale, Composition, and Comparative Advantage Effect Indicate?, Environmental Science and Pollution Research 22(24), 20131–20142.

  • Loayza, N. and R. Ranciere (2006): Financial Development, Financial Fragility, and Growth. Journal of Money, Credit and Banking 38(4), 1051–1076.

  • Managi, S. (2004): Trade Liberalization and the Environment: Carbon Dioxide for 1960–1999, Economics Bulletin 17(1), 1–5.

  • Managi, S., A. Hibiki and T. Tsurumi (2009): Does Trade Openness Improve Environmental Quality?, Journal of Environmental Economics and Management 58(3), 346–363.

  • Managi, S. and P. R. Jena (2008): Environmental Productivity and Kuznets Curve in India, Ecological Economics 65(2), 432–440.

  • Martin, P. and D. Wheeler (1992): Prices, policies, and the international diffusion of clean technology: The case of wood pulp production. World Bank Discussion Papers (World Bank Discussion Paper). 1992.

  • Milesi-Ferretti, G. M. and C. Tille (2011): The Great Retrenchment: International Capital Flows during the Global Financial Crisis, Economic Policy 26(66), 289–346.

  • Moscone, F. and E. Tosetti (2009): A Review and Comparison of Tests of Cross‐Section Independence in Panels, Journal of Economic Surveys 23(3), 528–561.

  • Nannicini, T. and A. Billmeier (2011): Economies in Transition: How Important Is Trade Openness for Growth?, Oxford Bulletin of Economics and Statistics 73(3), 287–314.

  • Nasir, M. and F. U. Rehman (2011): Environmental Kuznets Curve for Carbon Emissions in Pakistan: An Empirical Investigation, Energy Policy 39(3), 1857–1864.

  • Omri, A. (2013): CO2 Emissions, Energy Consumption and Economic Growth Nexus in MENA Countries: Evidence from Simultaneous Equations Models, Energy Economics 40, 657–664.

  • Ozturk, I. and A. Acaravci (2013): The Long-Run and Causal Analysis of Energy, Growth, Openness and Financial Development on Carbon Emissions in Turkey, Energy Economics 36, 262–267.

  • Panayotou, T. (1993): Empirical Tests and Policy Analysis of Environmental Degradation at Different Stages of Economic Development (No. 992927783402676). International Labour Organization.

  • Pedroni, P. (1999): Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors, Oxford Bulletin of Economics and Statistics 61(S1), 653–670.

  • 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(3), 597–625.

  • Pesaran, M. H. (2004): General diagnostic tests for cross section dependence in panels. University of Cambridge, Faculty of Economics, Cambridge Working Papers in Economics No. 0435.

  • Pesaran, M. H., Y. Shin and R. P. Smith (1999): Pooled Mean Group Estimation of Dynamic Heterogeneous Panels, Journal of the American Statistical Association 94(446), 621–634.

  • Pesaran, M. H. and R. Smith (1995): Estimating Long-Run Relationships from Dynamic Heterogeneous Panels, Journal of Econometrics 68(1), 79–113.

  • Peters, G. P., G. Marland, C. Le Quéré, T. Boden, J. G. Canadell and M. R. Raupach (2012): Rapid Growth in CO2 Emissions after the 2008–2009 Global Financial Crisis, Nature Climate Change 2(1), 2–4.

  • Pritchett, L. (1996): Measuring Outward Orientation in the LDCs: Can It Be Done?, Journal of Development Economics 49(2), 309–355.

  • Reppelin-Hill, V. (1999): Trade and Environment: An Empirical Analysis of the Technology Effect in the Steel Industry, Journal of Environmental Economics and Management 38(3), 283–301.

  • Saikkonen, P. (1992): Estimation and testing of cointegrated systems by an autoregressive approximation, Econometric Theory 8(1), 1–27.

  • Shafik, N. (1994): Economic Development and Environmental Quality: An Econometric Analysis, Oxford Economic Papers 46(October), 757–773.

  • Shafik, N. and S. Bandyopadhyay (1992): Economic growth and environmental quality: time-series and cross-country evidence (Vol. 904). World Bank Publications.

  • Shahbaz, M., H. H. Lean and M. S. Shabbir (2012): Environmental Kuznets Curve Hypothesis in Pakistan: Cointegration and Granger Causality, Renewable and Sustainable Energy Reviews 16(5), 2947–2953.

  • Shahbaz, M., S. Nasreen, K. Ahmed and S. Hammoudeh (2017): Trade Openness–carbon Emissions Nexus: The Importance of Turning Points of Trade Openness for Country Panels, Energy Economics, 61(2017), 221–232.

  • Shahbaz, S. J. H., R. R. Kumar, M. Zakaria and M. Hurr (2017): Carbon Emission, Energy Consumption, Trade Openness and Financial Development in Pakistan: A Revisit, Renewable and Sustainable Energy Reviews 70, 185–192.

  • Soytas, U., R. Sari and B. T. Ewing (2007): Energy Consumption, Income, and Carbon Emissions in the United States, Ecological Economics 62(3), 482–489.

  • Squalli, J. and K. Wilson (2011): A New Measure of Trade Openness, The World Economy 34(10), 1745–1770.

  • Stock, J. H. and M. W. Watson (1993): A simple estimator of cointegrating vectors in higher order integrated systems, Econometrica 61(4), 783–820.

  • Takeda, F. and K. Matsuura (2006): Trade and the Environment in East Asia: Examining the Linkages with Japan and the USA, The Journal of the Korean Economy 7(1), 33–56.

  • Wacziarg, R. and K. H. Welch (2003): Trade Liberalization and Growth: New Evidence, NBER Working Paper 10152, National Bureau of Economic Research, Cambridge, MA.

  • Wacziarg, R. and K. H. Welch (2008): Trade Liberalization and Growth: New Evidence, World Bank Economic Review 22(2), 187–231.

  • World Bank (2008): Unleashing Prosperity: Productivity Growth in Eastern Europe and the Former Soviet Union. World Bank Documents, Washington, p. 42,

  • Yanikkaya, H. (2003): Trade Openness and Economic Growth: A Cross-Country Empirical Investigation, Journal of Development Economics 72(1), 57–89.

Purchase article
Get instant unlimited access to the article.
Price including VAT
Log in
Already have access? Please log in.

Journal + Issues

The Review of Economics (Jahrbuch für Wirtschaftswissenschaften) is a peer-reviewed general interest journal publishing articles from all fields of economics with a strong policy focus. The journal aims to provide a forum for policy contributions and to influence the public debate.