Carbon emissions and trade in East, South, and Southeast Asia : a panel data approach

Abstract

The relationship between trade and carbon emissions is a crucial component of global climate discourse, particularly for Asia’s rapidly industrializing economies. Trade can either intensify environmental degradation through carbon leakage or serve as a channel for cleaner technologies and decarbonization. Understanding this duality is essential for designing effective, climate-aligned trade policy in the region. This thesis examines the impact of several trade factors on carbon emissions in thirteen countries spanning East, South, and Southeast Asia from 1990 to 2024, considering Asia's increasing emissions and reliance on exports. Employing a panel data methodology based on the Environmental Kuznets Curve (EKC), the Pollution Haven Hypothesis (PHH), and Pollution Halo effect Hypothesis frameworks, four distinct trade-emissions models are developed to evaluate the effects of total trade, merchandise trade, manufacturing exports, and agricultural exports independently. The principal independent variables comprise GDP per capita, power generated from renewable sources, and sector-specific tariff frameworks. The models are evaluated employing fixed effects and Driscoll–Kraay standard errors to guarantee robustness against heteroscedasticity, autocorrelation, and cross-sectional dependency. Empirical findings indicate that trade, especially in merchandise and agriculture, is significantly correlated with heightened emissions, notably in South Asia, where fertilizer use and fossil fuel transportation are prevalent. Conversely, manufacturing exports exhibit varied effects: emissions increase in East Asia while decreasing in ASEAN economies, characterized by more sustainable production methods. Renewable electricity consistently mitigates emissions across all scenarios, whereas tariff liberalization devoid of environmental protections exacerbates carbon leakage. The Environmental Kuznets Curve (EKC) is somewhat substantiated, particularly in the agricultural sector, where wealth development results in reduced emissions. Regionally, ASEAN demonstrates effective trade-emissions decoupling, East Asia reveals industrial vulnerability, and South Asia contends with enduring emission intensities associated with export expansion. Policy recommendations encompass the implementation of carbon-adjusted tariffs, regional Emissions Trading Systems (ETS), ESG-linked export incentives, and CBAM-style transport taxes to internalize embedded emissions. This study offers pragmatic approaches to align trade liberalization with climate objectives and enhances the developing dialogue on sustainable trade governance, green finance, and regional decarbonization plans in the Global South.