The Impacts of Trade Openness and Foreign Direct Investment on CO2 Emission in Vietnam

Abstract

This paper investigates the relationship between trade openness and CO2 emissions in Vietnam using the data from 1986 to 2014. We examine the consistency of the environmental Kuznets curve hypothesis (EKC) and the pollution heaven hypothesis (PHH) in Vietnam case. In 1986 Vietnam government began to launch free-market economic reforms. Since then, Vietnam economy experienced the breakthrough innovation in trade openness. On the other hand, Vietnam witness a growing level of CO2 emission. The annual growth rate of CO2 emission during the period is 7.26%, and that of trade volume is 16.11%. The empirical results show that the relationship between CO2 emissions and income per capita is an inverted U-shaped, consistent with to EKC hypothesis. We also find that the pollution heaven hypothesis is supported in that energy use and international trade contribute to air pollution, but becoming a full member of WTO brings positive effect to Vietnamese environment.