Can intra-regional trade, renewable energy use, foreign direct investments, and economic growth mitigate ecological footprints in South Asia?

ABSTRACT

Environmental degradation has become a severe concern across South Asia. Hence, it is imperative to model the macroeconomic determinants of environmental quality across this region. The traditional fossil fuel dependency of the major South Asian nations is alleged to have persistently deteriorated the quality of the environment across this region. Under such circumstances, it can be hypothesized that intra-regional trade within South Asia can facilitate renewable electricity trade to enhance environmental well-being. Accordingly, this study aims to evaluate the impacts of intra-regional trade integration, renewable energy transition, economic growth, and foreign direct investment inflows on the ecological footprints of selected South Asian economies. The econometric methods used in this study are suited for handling cross-sectionally dependent heterogeneous panel datasets. The overall results reveal that promoting intra-regional trade, stimulating renewable energy transition, expediting economic growth, and impeding inflows of dirty foreign direct investments are imperative for reducing the ecological footprint figures of the South Asian nations of concern. Besides, the results also verify the environmental Kuznets curve hypothesis for the South Asian panel as well as for Bangladesh, Sri Lanka, Nepal, and Bhutan but not for India and Pakistan. Moreover, the pollution haven hypothesis is also verified for both the panel and the individual South Asian countries. In line with these findings, several environmental welfare improvement-related policies are recommended.

KEYWORDS:

• Intra-regional trade
• ecological footprints
• renewable energy
• foreign direct investment
• South Asia
• environmental Kuznets curve

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ The estimate does not include the Maldives due to data unavailability.

² RET refers to the process of replacing nonrenewable energy with renewable alternatives whereby the fossil fuel dependency can be gradually eased out to ensure environmental sustainability (Murshed 2020a).

³ The trade openness index is measured as the sum of the value of exports and imports as a percentage ratio of the GDP (World Bank 2020b).

⁴ For an in-depth understanding of the EF and its calculation technique see Wackernagel and Rees (1998).