In recent years, the carbon dioxide emissions generated by the massive consumption of fossil energy have been increasing year by year, resulting in more and more obvious greenhouse effect, and the occurrence of climate disasters around the world has become more and more frequent. This study analyses the long-term effects of economic growth, trade, foreign direct investment (FDI) and gross domestic product (GDP) on carbon dioxide (CO2) emissions in Latin American countries that are in the middle-income trap (MIT). Using annual time-series data for the period 2000–2020, the results of middle-income countries of Latin America are compared with higher-income countries (Singapore, the United States, and South Korea) and an upper-middle-income country, China. Specifically, we examine the role of sector value addition to GDP on the CO2 emission nexus for middle-income economies, controlling for the effects on GDP, FDI, and trade. Using regression and path analysis (multiple regression) we find that for higher-income countries FDI, GDP and trade are the important variables that have a strong positive impact on CO2 emission, but that positive impact is weak in MIT countries, which makes this study significant as it highlights important variables needed for MIT countries to remain focused. Autoregressive distributed lag (ARDL) model results also explore that FDI, GDP growth and trade variables can significantly accelerate the environmental quality by CO2 emission, while tourism/travel services and education do not much impact the environment. Hence, our paper provides solid ground for developing a sustainable and pro-growth policy for MIT countries because they are plagued by the decline or stagnation of economic growth.
The middle-income trap (MIT) is often accompanied by the decline or stagnation of economic growth, unreasonable domestic industrial structure, and serious polarization between the rich and the poor. However, due to different international environments, different specific national conditions, and different development policies adopted by each country, how to get out of the MIT varies. This study carries out an analysis of different economic growth factors of Latin American countries (we selected 19 MIT countries out of 33) and compared them with Singapore and Korea, which are in a high-income range. We used a regression model to find the relationship of variables in each country and the impact on the economic growth due to these variables. The study finds using correlation and regression analysis, that trade and foreign direct investment (FDI) play a major role in avoiding the MIT by having a strong regression (R2 = 1.481*** for S. Korea, R2 = 0.65 for Singapore) with the gross domestic product (GDP) for high-income countries while having a weak regression in Latin American countries. Another factor is that industrialization and services export play a vital role in avoiding the MIT in Singapore and South Korea, and the same model should be used in Latin American countries to avoid the MIT. Furthermore, using the panel ARDL model we validated the results of a regression model and established that similar factors are impacting Latin American countries’ MIT. Correlation analysis is used to determine the relationship of selected factors and their impacting strength on the growth of an economy. In the final section, we present Latin American countries, and their main policy gaps according to their unique characteristics and recommend a policy with suggestions for avoiding the MIT by comparing their economies with those of high-income countries.
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