When Does Trade Become Green?

Abstract

This paper explores whether trade openness contributes to environmental sustainability in European emerging economies, focusing on the role of renewable energy. Using panel data for 13 Central, Eastern, and Southeastern European countries from 2006 to 2021, we estimate fixed effects models to assess the relationship between trade openness (TO), renewable energy consumption (REC), and CO₂ emissions per capita. The baseline model shows that both TO and REC are negatively associated with emissions. However, when including an interaction term between TO and REC, we find that trade openness alone does not significantly reduce emissions, while the interaction term is negative and statistically significant. This suggests that the environmental benefits of trade are conditional on the presence of a strong renewable energy sector. Our findings underscore the importance of integrated trade and energy policies and support recent literature emphasizing that trade can become “green” only under specific structural conditions.