Assessing the Economic, Social and Environmental Effects of Trade Openness: An OECD Analysis

Abstract

This study aims to examine the effects of trade liberalization on economic growth, income inequality, and CO₂ emissions, while also testing for the existence of both social and environmental Kuznets curves. To this end, three econometric models are employed. The first model analyzes the impact of trade openness on economic growth, the second investigates its effect on income inequality, and the third focuses on the relationship between trade openness and CO₂ emissions. The analysis is conducted using panel data for 24 OECD countries over the period 2005–2022. The methodological approach relies on panel data techniques, with estimations carried out using the fixed effects method. The empirical findings indicate that greater openness to international trade has a positive and statistically significant impact on economic growth by expanding markets, generating economies of scale, and enhancing productive efficiency in the countries studied. Furthermore, trade liberalization appears to increase income inequality, particularly between skilled and unskilled workers. From an environmental perspective, trade openness promotes the adoption of cleaner technologies, thereby contributing to a reduction in CO₂ emissions. Finally, the results confirm the existence of the Kuznets curve, revealing both U-shaped and inverted U-shaped relationships between GDP, income inequality, and CO₂ emissions within the estimated models.