The impact of international trade on environmental quality: The case of transition countries

This research presents first empirical time series evidence of the impact of international trade on environmental quality in the case of transition countries. The linkages between international trade and environmental quality are well established both theoretically and empirically in the literature. However, there exists no empirical study concerning environmental quality and international trade. Thus, our research aims at filling this gap. To this extent, fifteen transition countries are selected in order to test the impact of international trade on environmental quality. An econometric model between carbon emissions, energy use, income and trade openness was formed. This model was estimated via ARDL (Autoregressive Distributed Lag) approach to cointegration and GMM (Generalized Method of Moments) procedures. The econometric results from both of these econometric techniques support the existence of the EKC hypothesis only in three transition countries: Estonia, Turkmenistan and Uzbekistan. As for the impact of trade on environmental quality, the econometric results from both techniques vary in different transition countries. To this extent, the displacement hypothesis is validated in the case of Armenia, Estonia, Latvia, Kyrgyzstan and Russia. The paper also discusses policy implications of the empirical results, as well as offering policy recommendations.