Impact of trade openness on the environment: An assessment of CO₂ emissions in Vietnam : A thesis submitted in partial fulfilment of the requirements for the degree of Doctor of Philosophy at Lincoln University

Abstract

Since the innovation policy in 1986, the government of Vietnam has negotiated a number of free trade agreements to attract foreign investment and to boost the national economy. Vietnam has gained remarkable achievements in economic development as well as experiencing a degradation of the environment. Vietnam has comparative advantages in natural resource intensive products, and the closer international economic integration with trading partners is a prime source of additional pressures on the country’s natural resources and environment. However, studies to assess the impact of economic development and trade openness on Vietnam’s environment (measured by CO₂ emissions) are limited. This study provides a quantitative assessment of the impact of trade openness, economic development and energy consumption on Vietnam’s CO₂ emissions over a period of 29 years from 1985 to 2013. In particular, the study examines the impact of trade openness on CO₂ emissions in the long-run and short-run elasticities. In addition, the study examines the regulatory effect of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) on the environment and explores a way forward to integrate environmental considerations and commitments into free trade agreements in Vietnam. Secondary data were obtained from the World Bank; the World Integrated Trade Solution; the World Development Indicators; the official sources of Vietnam’s government bodies, such as the Ministries of Industry and Trade (MOIT), Natural Resources and Environment (MONRE), Finance (MOF); and Vietnam’s General Statistical Office (GSO). In terms of an empirical model, an Auto-regression Distributed Lag (ARDL) model was applied to estimate the impact of real per capita GDP, trade openness, and energy use on CO₂ emissions in the short-run and long-run elasticities. The results show a significant positive long-run elasticity between economic development, trade openness and energy use on CO₂ emissions in Vietnam. Trade liberalisation exhibits a positive impact (increasing impact) on CO₂ emissions. More specifically, a 1% increase in trade openness leads to a 0.19% increase in CO₂ emissions in the long-run elasticity. The empirical results show that the long-run relationship between economic development and CO₂ emissions in Vietnam can be expressed in an inverted U-curved function. In terms of energy consumption, the results show that energy usage positively affects CO₂ emissions. A 1% increase in energy usage leads to a 1.39% increase in CO₂ emissions in the long-run elasticity which strongly indicates the inefficiency of CO₂ treatment of energy use in Vietnam. Thus, the environmental quality can be improved with cleaner technology and stricter regulations on environmental protection incorporated into international economics at the policy level in Vietnam. With regard to the regulatory effect of trade openness on the environment, the Environmental Impact Assessment method was applied to analyse the potential regulatory effects of the CPTPP on Vietnam’s environment. We first analysed trade indicators including export data and the Revealed Comparative Advantage Index from 2000 to 2015 to examine the export pattern of Vietnam to CPTPP member countries. Next, we applied the Environmental Impact Assessment method on the CPTPP to screen and scope potential effects of trade openness on Vietnam’s environment. The results show it is likely that Vietnam’s textile sector will increase and its production pattern will change for it to be eligible for the CPTPP’s rules of origin and tariff reductions. Further, the results show that trade openness activities would benefit the environment when enforceable environmental requirements are integrated into free trade policy. The study results provide evidence of the possibility to protect and rehabilitate the environment along with Vietnam’s economic development. The results also provide insights for Vietnam’s policy makers to legalise the requirements on environmental impact assessment before, during, and after the negotiation of the free trade agreement.