Green trading and ecological sustainability under macroeconomic policy framework

Abstract

When confronted with ecological challenges, trading ecologically friendly products involving renewable technologies, green management practices, and effluent treatment methods could alleviate ecological degradation on a global scale while considering the macroeconomic policy framework. Therefore, this study determines the effectiveness of fiscal and monetary policy instruments in moderating the relationship between green trade openness (i.e., trade in environmentally related products) and ecological sustainability. Applying panel quantile regression on data from 20 OECD members from 2003 to 2016, we found that green trade openness supports ecological sustainability through a gains-from-trade approach. Concerning moderation effects, expenditure-driven fiscal expansion reinforces the favorable influence of green trade openness on ecological sustainability across ecologically less/moderately efficient economies, while it does the reverse for ecologically more efficient members. Taxation-driven fiscal contraction promotes ecological sustainability amelioration impact of green trade openness for economies with below-average ecological quality and remains neutral for those with average/above-average ecological quality. Besides, interest rate-driven monetary contraction proliferates the ecological sustainability enhancement effect of green openness. We suggest that the fiscal and monetary policies demand unambiguous coordination with the OECD’s trade policy structure for optimal environmental outcomes of trading in environmental products. These insights would help OECD’s green trade policies gain momentum to facilitate the attainment of the Climate Action agenda of the United Nations’ Sustainable Development Goals.