Do technological innovations and trade openness reduce CO2 emissions? Evidence from selected middle-income countries

Abstract

This paper examines the role of trade openness and innovation in reducing CO₂ emissions in middle-income countries with the goal of improving environmental quality. The generalised method of moments (GMM) method is used to estimate the long-run association between variables and Dumitrescu-Hurlin causality test is used to examine causality for a panel of 23 middle-income countries from 1994 to 2018. The findings refute the existence of an inverted u-shape relationship between innovation and CO₂ emissions. On the trade front, environmental deterioration is found to be relatively more severe in low middle-income countries than upper middle-income countries. Contrarily, the existence of the environment Kuznets curve (EKC) hypothesis for both country groups is also supported by the data; however, the fall in the EKC curve is insignificant for low middle-income countries. Implying that the quest to control carbon emissions has just begun in low middle-income countries and they must target a higher level of green innovation to reduce the ever-rising CO₂ emissions. It is also suggested to promote economic growth through knowledge spillovers and to establish a pollution level standard for trading and manufacturing sectors which generate the most contaminated waste.

Keywords: CO2 emissions; Environment Kuznets curve; GMM; Innovation; Trade openness.