The trade-environment nexus in light of governance: a global potential

Abstract

The theme of paper is to explore the trade-environment relationship and the role of institutions for 117 countries from global standpoint and five regions: Sub Saharan, European, Middle East and North Africa, Asia and Pacific, and Latin America and Caribbean, using the panel data span 2002–2014. By considering the endogeneity problem, to validate the nature of trade-environment nexuses, we applied the GMM first difference model in two steps. Likewise, Dumitrescu-Hurlin panel causality analysis is employed to affirm the causal relationship among the concern variables. The empirical findings of this study validate that the overall trade is significantly good to environment for sample countries (117) of the entire World, Europe, Asia, and Pacific regions. In further assessment, we incorporate interactive terms of institutions with trade, scale effect, and scale-technique effect. The estimated results confirm that institution is the persistent instrument for resolving the environmental problems. Furthermore, we find the evidence of inverted u shape EKC in overall selected sample of the World, Sub-Saharan, Europe, Asia, and Pacific regions. In contrast, there is no confirmation of inverted u shape EKC hypothesis in Middle East and North Africa regions. Similarly, no strong evidence of inverted u-shaped EKC hypothesis is observed in Latin-America and Caribbean region.