Assessing the EKC Hypothesis and the Impact of Environmental and Non-Environmental Goods Trade on Environmental Quality: Evidence from QRPD for OECD Countries

This study examines the impact of environmental and non-environmental goods trade on environmental quality in OECD countries over the period 1995 to 2021. Using the Quantile Regression for Panel Data (QRPD) method, the analysis explores how these two types of trade influence the Environmental Performance Index (EPI) across countries with varying levels of environmental quality. The key explanatory variables include trade in environmental goods, trade in non-environmental goods, economic growth and its squared term (to test the Environmental Kuznets Curve [EKC] hypothesis), and urbanization. The findings indicate that trade in environmental goods enhances environmental quality. In contrast, trade in non-environmental goods generally has a detrimental effect, particularly in countries with low to medium levels of environmental performance. Economic growth is associated with environmental degradation, while its squared term has a positive effect, supporting the validity of the EKC hypothesis. Urbanization is found to negatively affect environmental quality across all levels. The results also suggest that limiting the export of non-environmental goods and promoting the import of environmental goods may contribute to environmental improvement. By disaggregating trade effects and employing a distribution-sensitive method, the study provides novel empirical evidence. It offers policy-relevant insights and encourages the formulation of environmentally responsive trade and development strategies aligned with sustainable growth objectives.