Trade openness, urbanization and CO2 emissions: Dynamic panel data analysis of middle-income countries

Using the Pooled Mean Group (PMG) approach of Pesaran, Shin, and Smith [1999. Pooled Mean Group Estimation of Dynamic Heterogeneous Panels. Journal of the American Statistical Association 94 (446): 621-634], this article attempts to empirically examine the heterogeneous effects of trade openness and urbanization on CO2 emissions in 55 middle-income countries over the period from 1992 to 2012. We find that trade openness has a benign effect on the environment in the short run, but a harmful effect in the long run. Meanwhile, our results show that urbanization has a negative and significant impact on CO2 emissions both in the short and long run, implying that urbanization improves environmental quality. The results are robust even after controlling for a number of factors such as economic or non-economic factors.