All Theses and Dissertations

Degree

Master of Science in Economics

Faculty / School

School of Economics and Social Sciences (SESS)

Department

Department of Economics

Date of Award

Spring 2021

Advisor

Dr. Qaiser Munir

Second Advisor

Dr. Zeeshan Atiq

Third Advisor

Dr. Tehseen Jawaid

Committee Member 1

Dr. Qaiser Munir, Institute of Business Administration, Karachi

Committee Member 2

Dr. Zeeshan Atiq, University of Karachi

Committee Member 3

Dr. Tehseen Jawaid, University of Karachi

Project Type

Thesis

Access Type

Restricted Access

Pages

ix, 37

Abstract

Increase in trade liberalization over the years has led to growing concern over its effect on environmental quality. In this paper we investigate whether trade liberalization has any effect on environmental deterioration and how this relationship is contingent on the quality of governance. For this purpose, we employ an innovative panel threshold model by (Hansen 1999) and used a global sample of 81 countries from 1998-2014. This novel approach allows us to estimate the effect of trade liberalization on environmental deterioration in regimes with different levels of quality of governance. An overall governance index score is constructed, which summarized the six indicators of governance from the World Bank Database. The aggregate governance index is used as the threshold variable in our analysis. In addition, we separately studied the role of different aspects of governance for example corruption and government effectiveness in influencing the trade-environment nexus. We also investigated whether democratic countries complement trade in improving the environmental quality. The results shows the presence of a threshold relationship between trade openness and environmental deterioration. Trade liberalization causes CO2 emissions to increase in countries with low aggregate governance index score but decreases CO2 emissions in countries which score high in aggregate governance index. The results also show threshold effects in the trade-environment relationship in all the different types of governance indicators except for political stability and violence. For instance, trade openness is beneficial to the environment in countries which have low level of corruption and which score high in government effectiveness. Our result implies that a strong governance is critical in realizing the beneficial impact of trade openness on the environment. Our findings also support the theory of the Environmental Kuznet curve. Moreover, we found that agricultural value added, fossil fuel use and energy consumption increases CO2 emissions.

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