Environmental Effects of Commodity Trade vs. Service Trade in Developing Countries

Abstract

Increasing levels of carbon emissions have been a growing concern worldwide because of their adverse environmental effects. In that context, this paper examines the association between different categories of trade and carbon dioxide emissions. In particular, we analyze whether total trade, commodity trade, and service trade affect the environment differently. The analysis is based on panel data for 147 developing countries for the period from 1960 to 2020. Methodologically, the fixed-effects model, as suggested by the Hausman test, is used to examine the relationships. We present two main conclusions: (1) overall trade increases CO2 emissions, and (2) commodity trade contributes to higher levels of CO2 emissions than service trade. These results have important policy implications—climate change policies should target commodity trade sectors to help reduce environmental carbon emissions.