Evaluating the environmental effects of economic openness: evidence from SAARC countries
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RESEARCH ARTICLE
Evaluating the environmental effects of economic openness: evidence from SAARC countries Hua-ping Sun 1,2,3
&
Gulzara Tariq 1 & Muhammad Haris 1 & Muhammad Mohsin 2
Received: 29 May 2019 / Accepted: 12 June 2019 / Published online: 24 June 2019 # Springer-Verlag GmbH Germany, part of Springer Nature 2019
Abstract This study investigates the possible environmental effects of economic openness, such as economic growth, foreign direct investment (FDI) inflows, and trade liberalization in South Asian Association for Regional Cooperation (SAARC) countries. The study employed panel autoregressive lag distribution (ARDL) model to evaluate the environmental effects of economic openness; causality test was also conducted to confirm short- and long-run causality among the variables under discussion. The results show that trade, FDI, capital, and economic growth in the long run have a positive correlation with environmental degradation in SAARC countries while FDI, capital, and trade inflows have a negative relation with CO2 emissions in the short run. Furthermore, economic growth by creating new job opportunities improved emissions also in the short run. FDI, trade, capital, and GDP have long-run causality with CO2 emissions. Bidirectional causality was found between GDP and CO2 emissions, unidirectional causality was also running from FDI inflows to economic growth, unidirectional causality running from capital to FDI and trade to capital. Finally, trade and economic growth also have unidirectional causality in the short run. This study concludes, therefore, that SAARC countries should invest in green energy and promote green trade liberalization. Keywords Foreign direct investment . Trade liberalization . Economic growth . Environmental effects
Introduction In recent years, scholars and policymakers have paid close consideration to the environmental effects of foreign direct investment (FDI) inflows, trade liberalization, and economic growth. Previous studies have shown that FDI inflows and trade openness have the capacity to expand international manufacturing and energy use and thereby drastically degrade the environment. Developing countries are especially sensitive to this result due to their already weakened ecosystems. Responsible editor: Eyup Dogan * Hua-ping Sun [email protected] 1
School of Finance and Economics, Jiangsu University, Zhenjiang 212013, People’s Republic of China
2
Division of Low-carbon Economy and Environmental Regulation, Institute of Industrial Economics, Jiangsu University, Zhenjiang 212013, People’s Republic of China
3
School of Environmental Science and Engineering, Shanghai Jiao Tong University, Shanghai 200240, People’s Republic of China
Environmental sustainability is also decreasing as countries are enhancing their growth by increasing trade openness and FDI inflows. However, we can also say that unless they are open to the kind of trade and developmental activities that attract FDI, countries can neither achieve economic growth nor improve quality of life. To lessen
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