Trade, FDI and Emissions in South Asia: Role of Global and Regional Linkages

The article investigates the long-run impact of global and regional linkages through trade, foreign investment and digitalization on reducing carbon emissions in five South Asian economies, namely Bangladesh, India, Nepal, Pakistan and Sri Lanka. Based on the data from 2006 to 2021, the study uses the fully-modified OLS technique for estimation after controlling for endogeneity, non-stationarity, cross-sectional dependence and cross-sectional heterogeneity in the panel data. The article finds that exports and FDI inflows reduce consumption-based emissions for South Asia, thereby strengthening the idea that trade in environment-friendly goods and services and the transfer of cleaner technologies could facilitate better adaptation to climate change in the region. The positive impact of imports on emissions indicates that the region imports products with high energy usage. Regional linkages are also found to mitigate carbon emissions, providing ground for such linkages to encourage policy frameworks for countering climate change-related risks. The output and energy consumption are found to impact consumption-based emissions positively. The policy recommendation that emerges from the article is to integrate trade, investment and climate change policies to foster sustainable growth in the South Asian region. JEL Codes: F18, F13, Q43