Green Growth or Greenhouse Gases: The Environmental Impact of Trade Liberalization in South Asia

Abstract

South Asia, populated by over 1.9 billion individuals and characterised by swiftly expanding economies, confronts a significant challenge: reconciling trade-induced economic expansion with increasing greenhouse gas emissions. This study examines the relationship among trade openness, economic growth, and CO2 and CH4 emissions in India, Pakistan, Bangladesh, and Sri Lanka from 2000 to 2024. Employing fixed effects regression models, we analyse trade impacts by isolating scale, composition, and technique effects, validating the Environmental Kuznets Curve (EKC) hypothesis. Our research indicates that trade openness exacerbates emissions via scale effects, especially in capital-intensive sectors, but deploying low-carbon technologies alleviates environmental harm. The study underscores the unique dynamics of CO2 (industrial) and CH4 (agricultural) emissions, presenting policy implications for harmonising economic integration with sustainability. This research provides the inaugural empirical validation of the Environmental Kuznets Curve (EKC) within the distinct socio-economic framework of South Asia. It suggests specific policy strategies, thereby addressing significant knowledge deficiencies and outlining a trajectory for sustainable development in a climate-sensitive area.