Decomposing the trade-environment nexus for high income, upper and lower middle income countries: What do the composition, scale, and technique effect indicate?

Abstract

This study empirically examines the impact of trade openness on ecological footprint (F) employing panel data time series covering the period 1991–2016 for the sample of thirty five Asian countries. To analyze the consequence of trade at three distinct transition points, we decompose the trade effect into scale, composition, and technique effects. Using second generation econometric approaches that considers the issue of cross sectional dependence, the result show positive (negative) effect of scale (technique) on ecological footprint which validates the environmental Kuznets curve hypothesis for high income, upper middle and lower middle income countries. Further, energy consumption contribute to ecological footprint whereas, composition effect and trade openness mitigates environmental degradation. However, the results vary across different sub-panels. The findings impart innovative approach to detect the influence of trade openness in three sub dimensions of trade liberalization. Hence, for trade policy makers and economists, this article assigns more comprehensive policy implications and suggest sustainable trade agreements among the region.

Keywords

• Ecological footprint
• Economic growth
• Trade openness
• Scale effect
• Composition effect
• Technique effect