Effects of trade openness on environmental quality: evidence from developing countries

Figures & data

Table 1. Information on variables.

Variables	Description	Unit of measurement	Sources	Expected effect on environmental quality
Environmental quality^(*)	CO2 emissions (metric tons per capita)	metric tons	World Development Indicators (WDI)
Trade openness^(*)	The ratio of total trade (exports and imports) to GDP	%	WDI	(–)
Financial openness^(1)	The capital account openness index (KAOPEN) is based on four binary dummy variables associated with the financial account in the International Monetary Fund’s Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER), including the presence of multiple exchange rates, restrictions on current account transactions, restrictions on capital account transactions, and the requirement of the surrender of export proceeds.	Scale from −1.92 to 2.35	AREAER; Chinn and Ito (2019)^1	(+)
Income^(*)	GNP per capita is the measure of GNP (current USD) divided by the total population.	$ USD	Global Financial Development Database (GFDD)	(±)
Relative income^(*)	Relative income is calculated by dividing each country’s income by the corresponding world average for the given year. The “world average” is determined by all the countries in the Penn World Table (PWT) version 9.1.	World = 1	GFDD; PWT version 9.1.
Economic intensity	Economic intensity is calculated by multiplying real GDP with population density.	US$/km^2	WDI	(±)
Human capital	Human capital index, based on years of schooling and returns to education (see Human capital in the PWT version 9.0)		PWT version 9.1.	(+)
Capital abundance (adjusted)^(*)	The adjusted capital abundance of countries (the physical capital stock per worker) is calculated from the physical capital stock (available in the PWT version 9.1) divided by labor force (available in the WDI).	[-]	PWT version 9.1; WDI	(±)
Relative capital abundance^(*)	Relative capital abundance is calculated by dividing each country’s capital abundance by the corresponding world average for the given year. The “world average” is obtained by all the countries in the PWT version 9.1.	[-]	PWT version 9.1; WDI	(±)
Inward FDI stock to capital stock^(*)	Inward FDI stock to capital stock is calculated from each country’s inward FDI stock divided by capital stock (available in the PWT version 9.1).	[-]	United Nations Conference on Trade and Development Statistics (UNCTAD)	(+)
Renewable energy consumption^(*)	The renewable energy share in total final consumption is the percentage of final consumption of energy that is derived from renewable resources including wind, solar, liquid biofuels, hydro, solid biofuels, biogas, geothermal, marine and waste.	%	International Energy Agency (IEA)	(+)
Legal origins	British legal origin dummy, Socialist legal origin dummy, or French legal origin dummy	1 or 0	Porta et al. (1998)	(±)
Regional dummies	Africa dummy, Asia dummy, and Latin America and the Caribbean dummy	1 or 0	United Nations (UN)	(±)
Time trend	The time trend from 2003 to 2017.	From 1 to 15		(+)

⁽¹⁾To get the data relative to KAOPEN for this paper, we used the updated index of Chinn and Ito (2019). The dataset is available at http://web.pdx.edu/~ito/Chinn-Ito_website.htm; (*⁾The above variables were transformed into natural logarithms.

Source: Author’s analysis.

Table 2. The effects of trade openness on environmental quality: posterior estimates under uniform model priors.

Variable	g = BRIC			g = UIP			g = LEB
	PIP	Post mean	Post SD	PIP	Post mean	Post SD	PIP	Post mean	Post SD
Financial openness	1.000	−0.081	0.011	1.000	−0.081	0.011	1.000	−0.082	0.011
Socialist legal origin dummy	1.000	0.600	0.066	1.000	0.600	0.066	1.000	0.600	0.066
Africa dummy	1.000	−0.349	0.037	1.000	−0.349	0.037	1.000	−0.349	0.037
Latin America and the Caribbean dummy	1.000	−0.314	0.046	1.000	−0.314	0.046	1.000	−0.314	0.046
Interaction between capital abundance (adjusted) and income	1.000	−0.112	0.009	1.000	−0.112	0.009	1.000	−0.112	0.009
Inward FDI stock to capital stock	1.000	0.102	0.016	1.000	0.102	0.016	1.000	0.102	0.016
Renewable energy consumption	1.000	−0.118	0.008	1.000	−0.118	0.008	1.000	−0.118	0.008
Time trend	1.000	−0.052	0.003	1.000	−0.052	0.003	1.000	−0.052	0.003
Interaction between trade openness, relative capital abundance and relative income	1.000	−0.048	0.008	1.000	−0.048	0.008	1.000	−0.048	0.008
Lagged income	0.997	0.311	0.065	0.997	0.311	0.065	0.997	0.311	0.065
Interaction between trade openness and the square of relative capital abundance	0.535	−18.881	85.169	0.534	−19.010	85.448	0.533	−18.421	84.171
Interaction between trade openness and relative capital abundance	0.527	37.575	170.339	0.528	37.833	170.896	0.527	36.656	168.343
The square of capital abundance (adjusted)	0.521	5.923	44.628	0.517	5.898	44.543	0.514	5.729	43.875
Capital abundance (adjusted)	0.507	−10.606	89.256	0.511	−10.558	89.085	0.513	−10.218	87.750
British legal origin	0.249	−0.016	0.032	0.249	−0.016	0.032	0.242	−0.016	0.032
The square of income	0.077	−0.006	0.030	0.077	−0.006	0.030	0.074	−0.006	0.029
Interaction between trade openness and the square of relative income	0.036	0.928	19.101	0.035	0.918	19.005	0.034	0.921	19.035
Interaction between trade openness and relative income	0.035	−1.855	38.201	0.035	−1.836	38.010	0.034	−1.841	38.070
Economic intensity	0.034	1.066	31.582	0.034	1.054	31.418	0.033	1.045	31.284
The square of economic intensity	0.034	−0.533	15.791	0.034	−0.527	15.709	0.033	−0.522	15.642
Trade openness	0.033	0.000	0.008	0.033	0.000	0.008	0.032	0.000	0.008

BRIC denotes benchmark prior; UIP denotes unit information prior; and LEB denotes local empirical Bayes approach; PIP denotes posterior inclusion probability.

Source: Author’s analysis.

Figure 1. Marginal densities of trade openness from BRIC.

Source: Author’s analysis

Figure A1. Environmental quality in developing countries over the period 2003–2017.

Source: World Development Indicators (WDI) and author’s calculations.

Table A1. The list of selected developing countries.

AFRICA (27 developing countries): Algeria, Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Central African Republic, Egypt Arab Rep., Gabon, Ghana, Kenya, Malawi, Mali, Mauritius, Morocco, Namibia, Niger, Rwanda, Senegal, Sierra Leone, South Africa, Togo, Tunisia, Uganda, United Republic of Tanzania, and Zambia.

ASIA (21 developing countries): Bangladesh, Cambodia, China, India, Indonesia, Iran (Islamic Rep.), Israel, Jordan, Kuwait, Malaysia, Mongolia, Myanmar, Nepal, Pakistan, Philippines, Singapore, Sri Lanka, Thailand, Turkey, United Arab Emirates, and Viet Nam.

LATIN AMERICA AND THE CARIBBEAN (16 developing countries): Barbados, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Nicaragua, Paraguay, Peru, and Uruguay.

Chinn, M. D., & Ito, H. (2019). The chinn-ito index – a de Jure measure of financial openness. http://web.pdx.edu/~ito/Chinn-Ito_website.htm.

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Porta, R. L., Lopez de Silanes, F., Shleifer, A., & Vishny, R. W. (1998). Law and finance. Journal of Political Economy, 106(6), 1113–1155. https://doi.org/10.1086/250042

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