Testing the moderating role of trade openness on the environmental Kuznets curve hypothesis: a novel approach

We explore the moderating role of trade openness (TO) by gauging its main and interaction effects on the economic growth and environmental quality nexus. In this direction, we implement a novel approach by using three different measures of pollution emissions (CO2–CH4–PM2.5) in the environmental Kuznets curve hypothesis and applying a structural equation modelling methodology to 115 countries, grouped into low-, middle- and high-income countries, spanning the period 1992–2018. The evidence suggests that energy consumption has a positive impact on CO2 emissions for all income panels whilst the moderating effect of TO appears to be a key degrading factor of environmental quality in low- and middle-income countries. In addition, TO’s interaction with GDP growth is found to negatively affect environmental quality across all income groups. Given that global economies are on the verge of returning to pre-pandemic levels of industrial operations along with emissions in the wake of the failure of COP26 and that COVID-19 has reminded the world the urgency of developing sustainable approaches in fostering ‘green economic growth’ models; a host of policy measures are proposed in support of this whilst their likely implications are discussed with reference to different income level countries.