Trade engagement, economic growth, and institutional quality on environmental degradation for ASEAN-5 under the Green Belt-Road Initiative

Abstract

Abstract This study examines the impact of trade engagement with China and factors related to economic growth on environmental cleanness for ASEAN countries. This study uses panel cointegration, and causality test covering the period of 1996–2020 to determine the short and long-run relation, and the causality directions. The empirical findings indicate long-run cointegration between the explored variables, in which economic growth and financial development negatively affect environmental cleanness. On the contrary, the negative relationship shows that trade engagement with China, foreign direct investment (FDI) and the current institutional quality level can better promote environmental cleanness. This study also found that the EKC hypothesis existed when the ASEAN-5 pursued economic growth and the Pollution Haven Hypothesis (PHH) did not confirm both the aspects of trade engagement with China trade volume flows in the region facing inverted U-shape condition in the long-run period. There is unidirectional causality running between trade engagement, FDI and institutional quality with carbon emission; and a bidirectional causality running between GDP and financial development with carbon emission. Overall, the empirical findings of this study have contributed to valuable environmental policies in future to ensure that the ASEAN region develops with a sustainable environmental concern under the context of the green Belt-Road Initiative (BRI).