Green trade or green technology? The way forward for G-7 economies to achieve COP 26 targets while making competing policy choices

Making a country's Trade environmentally friendly, aka the Green Trade through environmental restrictions, has long been a popular policy choice, especially for the wealthy and trade-integrated economies. However, the effectiveness of such regulations in terms of improved environmental quality is an essential but less investigated research question. In this paper, we analyze, for G-7 countries, the environmental effects of the two competing policy choices, i.e., imposing environmental restrictions on Trade or investing in green technology and inno-vation, by following a rigorous econometric approach. Our results are exciting and, to some extent, contrary to mainstream ideas. We find that the increasing share of Green trade in the overall trade portfolio of G-7 countries is futile and more damaging for the environment by causing an increase in consumption-based carbon emissions. On the other hand, the role of Green technology is highly effective in reducing these emissions in the panel of G-7 countries. These results highlight the effectiveness of the two competing policy choices almost every country must make to protect the climate and stop further environmental degradation.

Automated summary

Pursuing Green Trade, which involves environmental restrictions, has been a popular policy choice for wealthy and trade-integrated countries. However, the effectiveness of such regulations in improving environmental quality has been a less investigated area. In this study, using a rigorous econometric approach, we analyze the environmental effects of two competing policy choices, namely imposing environmental restrictions on Trade or investing in green technology and innovation for G-7 countries. Our findings are exciting and contrary to mainstream ideas. We find that increasing the share of Green trade in G-7 countries' overall trade portfolio has no environmental benefits and actually leads to increased consumption-based carbon emissions. On the other hand, investing in Green technology has a significant positive impact in reducing these emissions in the panel of G-7 countries. These results underline the importance of the two competing policy choices that every country must consider to protect the climate and prevent further environmental degradation.