Exploring the Impact of Iran-China Trade on Environmental Sustainability

Abstract

The pursuit of economic growth and development is a universally espoused goal across societies. However, it is increasingly recognized that such endeavors often come with unintended negative consequences, particularly in the realm of environmental degradation. In recent years, discussions surrounding the externalities of globalization and free trade have gained prominence, our study explores the Iran-China trade relationship by utilizing time series data spanning from 1987 to 2022. Employing the Autoregressive Distributed Lag (ARDL) approach to cointegration, we seek to identify long-run relationships between variables pertinent to the pollution haven hypothesis models. To differentiate between industries with varying environmental impacts, we categorize them into "dirty" and "green" sectors based on their International Standard Industrial Classification (ISIC) codes. Our analysis encompasses models for each ISIC code category, as well as an aggregated model to assess the broader implications. Our findings reveal several noteworthy insights. Firstly, we observe an inverted U-shaped Environmental Kuznets Curve (EKC), suggesting that environmental degradation initially worsens with economic growth before reaching a turning point and improving thereafter. Furthermore, the disproportionate contribution of manufacturing products to CO2 emissions underscores the significance of industrial activity in driving environmental pressures. Surprisingly, our analysis does not lend support to the pollution haven hypothesis in the aggregated model, indicating that the relationship between trade and environmental degradation is nuanced and multifaceted. However, upon closer examination through detailed models, such as those focusing on specific ISIC codes, we find evidence suggesting the potential validity of the pollution haven hypothesis, particularly in industries categorized as "dirty." Our study provides valuable insights into the Iran-China trade relationship and its implications for environmental sustainability, it also highlights the complexity of the interplay between trade, economic growth, and environmental degradation. Moving forward, policymakers and stakeholders must adopt a holistic approach that balances economic imperatives with environmental stewardship to ensure sustainable development for future generations.