Impact assessment of trade on environmental performance: accounting for the role of government integrity and economic development in 79 countries

Abstract

Trade has become a carrier for transporting both clean and dirty (pollution-intensive) goods, services and technologies between countries. While the impact of trade on economic development has been reported in the extant literature, insufficient and inconsistent results exist between pollution-embedded trade and environmental performance. Using the Ordinary Least Squares (OLS), Generalized method of moments and panel quantiles via Moments, this study explored the role of government integrity on trade-environment nexus in the post-Kyoto protocol era for 79 countries between 2008 and 2018. The empirical results suggest that per capita GDP and government integrity improve environmental performance whereas trade impedes it. In the quantile regression model, the effect of government integrity is significant at the median quantiles with a stronger effect in countries with higher environmental performance. The negative effect of trade is not only significant from the lower quantile through the median quantile but decreases in magnitude, tracking from countries with lower to higher environmental performance. While the positive effect of government integrity is significant from the median quantile onwards, the negative effect of trade is only significant in the lower quantile. Robustness analysis from the GMM dynamic panel estimation technique shows that interacting government integrity with trade yields a positive and significant coefficient. Meaning that improved government integrity averts the negative effect of trade on environmental performance. The study suggests that outsourcing the regulations of trade-oriented multinational companies operating in developing economies with weak institutions to global humanitarian organisations such as the United Nations would be the first step to reduce trade-attributable environmental degradation.

Trade Liberalization and Environmental Performance Index: Mediation Role of Climate Change Performance and Greenfield Investment

“…The other issues, such as urbanization, industrial development, overcrowding, and exploiting the positive externalities such as public provisioning of waste management, eco-friendly infrastructure, and transportation systems, also need to be improved. The policy implications discussed here are aligned with the prior studies [21,27,32,[38][39][40]67,81].…”

“…By reviewing the prevailing literature, it can be observed that there are not many studies available that analyze the relationship between trade and a comprehensive proxy of the environment, and the evidence is mixed [67]. Therefore, to enrich the limited literature on this topic, the current research examines the effects of trade on the environment by measuring EPI.…”

Modelling the effect of energy consumption on different environmental indicators in the United States: The role of financial development and renewable energy innovations

“…Both studies found a significant relationship between trade policy and carbon emissions in the United States. From a global perspective, Alhassan et al (2020) employed a panel of 79 countries and found that trade impedes environmental performance in countries with lower environmental performance and that the negative environmental effect of trade can be averted with stronger government integrity. Zhao et al (2021), employing a globally representative panel of 62 countries, find that financial risk and innovation impede environmental degradation in countries with the highest emissions, but induce environmental degradation in countries at lower quantiles.…”

Factors of national environmental performance in sustainability management aspect

“…Other independent variables are often used while investigating the determinants of national environmental performance along with the above-mentioned ones. Alhassan et al (2020) explored the effect of international trade on EPI, combining this variable with indicators of economic growth and government integrity. It was stated that improving the integrity of the government might avert the environmental degradation driven by trade.…”