The second research objective aims to evaluate the long-run and short-run relationship between CO2
emissions and per capital income, trade openness ratio, energy consumption over a period of 29 years from 1985 to 2013. In order to achieve the second objective of our study, we examined the impact of trade liberalisation on the environment by applying an empirical model. Our study follows the empirical methods of Halicioglu (2009), Jalil and Mahmud (2009), and Tan et al. (2014) by putting the nexus of output-energy and output-pollution under the same framework.
In our empirical model, the dependent variable is CO2 emissions (Ct); the explanatory variables are
trade openness ratio (Trt), real per capita GDP (Yt), and energy consumption (Et). The CO2 emissions
variable is employed as a proxy of environmental degradation. Per capita income, energy use and trade intensity variables are used as proxies of scale, technique, and composition effects of economic development on the environment (Grossman & Kruger, 1995; Gale & Mendez, 1998).
The relationship between the explanatory variables and the dependent variable was examined by two functional equation forms, including a log-linear and quadratic function. The ARDL estimation technique was applied to estimate the short-run and long-run impacts of the independent variables on CO2 emissions. Time series data enabled our study to assess the dynamic impacts of each
independent variable and provide a better framework to study a single country case (Ren et al., 2014). The data were obtained from the World Bank for a period of 29 years, from 1985 to 2013.
The research results on the overall impact of trade liberalisation on the CO2 emissions in Vietnam are
summarised below.
Firstly, the research result revealed that trade openness has a negative impact on CO2 emissions and
the increase in free trade activities would bring more emissions of CO2 into the environment. In the
short-run, a 1% increase in trade openness leads to a 0.150% increase in CO2 emissions; and in the
long-run a 1% increase in trade openness leads to a 0.191% increase in CO2 emissions (see Table
5.12).
Further, our study found that the impact of trade openness on the CO2 emissions does not occur
instantaneously but is distributed over two future time periods. More specifically, in terms of the lag effect, a 1% increase in trade openness leads to a 0.149% increase in CO2 emissions in the same year,
a 0.209% increase in CO2 emissions one year later, and a 0.2117% decrease in CO2 emissions two
years later. The coefficient of the lag two of trade openness has a negative sign (-0.2117) and is significant at the 1% level indicating that the impact of trade openness on CO2 emissions is estimated
to be reversed from negative to positive after a two year period. The positive effect of trade openness may occur due to the technology transfer from Vietnam’s trading partners. Alternatively, trade liberalisation enables Vietnam to equip itself with advanced technology in its domestic
productions and reduce CO2 emissions. Our explanation can, in fact, be supported by some literature
that the technological evolution is more likely to happen during the implementation of trade policy (Cole & Elliott, 2003; Tang & Tan, 2015; UNEP, 2005). This indicates a positive signal for Vietnam to continue opening to trade in a sustainable manner by integrating environmental protection requirements into free trade policy.
Vietnam is experiencing a thriving trend in negotiating free trade agreements, thus the country should take the advantages of trade openness to protect the environment. This could be achieved by efficiently adopting several measures, such as the promulgating of stricter requirements on
environmental protection during trade and production activities; investing and adopting of
environmentally friendly technology applied in the domestic production activities; and improving the implementing efficiency of environmental protection requirements.
Secondly, in the long-run equilibrium (see Table 5.12), Yt and Yt2 are significant at the 1% level.
Besides, Yt has a positive sign, and Yt2 has a negative sign which shows that the per capita income
affects CO2 emissions in an inverted U-curved function. This reflects the existence of an EKC theory
in Vietnam, where the CO2 emissions increase at the initial stage of economic growth, and decrease
thereafter. The EKC theory may help to explain the negative impact of economic development on the environment in Vietnam. This means at the beginning stage of economic development, the country relies heavily on nature, or trades off the environment for economic benefits.
Yt and DYt are significant at 1% and 5% levels, respectively (see Table 5.12), which indicates that per
capita income has long-run and short-run negative impacts on CO2 emissions. This reflects that
economic development in Vietnam is accompanied by the increasing of CO2 emissions. The long-run
elasticity of CO2 emissions with reference to economic growth is 1.916, which implies that a 1%
increase in per capita income is associated with a 1.916% increase in CO2 emissions. The short-run
elasticity of economic growth on CO2 emissions is 1.136, which means a 1% increase in per capita
income leads to a 1.136% increase in CO2 emissions.
While the study shows the applicability of EKC theory in Vietnam, it does not indicate that there exists a simple way to rehabilitate the environment by developing the economy further. Vietnam has comparative advantages in international trade due to its abundant natural resources, low labour cost
and favourable geographic conditions; thus Vietnam may develop further the production of natural- intensive sectors as a result of trade openness. In other words, the domestic production pattern of Vietnam may change towards environmentally-intensive sectors. Therefore, in order to efficiently protect the environment, Vietnam needs to invest in energy efficient technology towards a low carbon economy as well as strictly monitor the implementation of environmental protection requirements in its production activities.
Lastly, the per capita energy consumption has a significant long-run and short-run impact on CO2
emissions. The positive signs of Et and DEt indicate a negative impact of energy consumption on CO2
emissions which implies the more energy that is used the higher the CO2 emissions. Specifically, a 1%
increase in energy use leads to an increase of 1.391% in CO2 emissions in the long-run and 0.918% in
CO2 emissions in the short-run (see Table 5.12). This indicates the inefficiency of CO2 treatment of
energy consumption in Vietnam and suggests that Vietnam’s CO2 emissions will be reduced as a
result of improving energy consumption efficiency. This result is supported by previous studies such as those of Anwar and Alexander (2016); Linh and Lin (2014); Tang and Tan (2015) which
documented the inefficiency of energy use in Vietnam.