Trade openness, financial liberalization, economic growth, and environment effects in the North-South: New static and dynamic panel data evidence

Purpose-This chapter investigates the long-run relationship between trade, financial openness, economic growth, and carbon dioxide emissions across 167 countries over the period 1970-2007. Methodology/approach-We employ both standard panel least squares and dynamic Generalized Method of Moments approaches to overcome problems of mis-specification inherent in the prior literature. Findings-We find a strong link between economic growth, trade, financial openness, and environment. For the entire sample and industrial countries, our results support the environmental Kuznets curve (EKC). Our results also suggest that while economic growth, trade financial, and openness reduce CO₂ emissions for all countries, the countries from the North appear to benefit more from trade and financial openness than the countries from the South in terms of reduction in CO₂ emissions. Research implications-The results imply that policy makers should not seek to limit efforts to link trade openness and financial liberalization to environmental quality but to set trade policy-making, economic growth, and financial liberalization in a broader context to take into account environmental concerns as these issues are inextricably linked. Originality/value-This chapter extends the existing literature by comparing the extent to which trade openness and financial liberalization influence the carbon emissions in the North and South.