Trade in Intermediates, Industrial Threshold, and Sustainable Emission in South Asia

How does trade in intermediate commodities affect the emission levels in South Asian countries? The prevailing literature has engaged with production fragmentation and trade in intermediate goods for a long time; yet the environmental impact of trade in intermediates is less understood. This paper deals with a panel of eight South Asian countries producing pollution-intensive commodities, between 1998 and 2018 to estimate if the export and import of intermediate products affect the emission of CO2 in these countries. The paper uses a number of covariates including foreign capital inflows, trade with rich countries, and interaction terms with the level of industrialization in these countries. The location and institution-based instrumental variable regression supported by dynamic panel estimates indicate that greater fragmentation indeed leads to more emission. The deepening of the industrial threshold moderates the negative impact. We conduct robustness analyses to substantiate these results.