Export diversification, CO2 emissions and EKC: panel data analysis of 125 countries

This study explores the applicable stipulation of cross-country regression analysis of international trade and carbon emissions using data on export diversification across 125 countries from 2000 to 2014 at the HS4 digit of disaggregation. Export diversification is subdivided into vertical and horizontal diversification in order to justify its correlation with pollution emission through scale effect, technique effect as well as composition effect. We use an empirical regression equation incorporating Driscoll and Kraay standard errors to rectify the possible problems of heteroscedasticity as well as auto-correlated issues. Besides, interaction terms of economic development and export diversification facilitate the comparison among different income levels: low-income countries illustrate U-shaped relationship between economic development and CO2 emissions, while OECD countries still keep an inverted U-shaped EKC curve which is unanimous with the outcome of 125 countries in general.