Trade openness helps move towards carbon neutrality—Insight from 114 countries

Abstract

In order to better understand the impact of trade openness and foreign direct investment (FDI) on carbon neutrality (economic growth without increasing carbon emissions), linear fully modified ordinary least squares model and non-linear panel threshold regression model are applied to explore the impact of trade openness and FDI on economic growth and carbon emissions in 114 countries. The results of the Tapio decoupling model showed that the decoupling between economic growth and carbon emissions is an M-shaped from 2002-2015, and a strong decoupling exists between them after 2015. The results from the linear model showed that FDI promotes both economic growth and carbon emissions. Trade openness promotes economic growth, but curbs the increase in carbon emissions. In other word, trade openness contributes to economic without increasing carbon emissions, which is conducive to achieving carbon neutrality. The results of the non-linear model showed that when FDI crosses the threshold, the effect of FDI on economic growth first promotes and then inhibits and then promotes, the effect of FDI on promoting carbon emissions first increases and then decreases. When trade openness crosses the threshold, the promotion effect of trade openness on economic growth increases, while the inhibitory effect of trade openness on carbon emissions decreases. Finally, the policy implications are proposed.