Eco-Friendly Trade: Can It Be the Pathway to Environmental Sustainability in Asia?

The quest for environmental sustainability continues to gain prominence, but the environmental goods trade-environmental sustainability nexus has not received adequate research attention. Therefore, this study evaluates the impact of environmental goods trade on environmental performance. Environmental goods (EGs) are defined as products designed to support environmental protection and climate-change mitigation and are identified using the IMF environmental goods classification based on the WTO–OECD list, ensuring cross-country comparability. Using second-generation panel time series methods and the Augmented Anderson–Hsiao (AAH) estimation technique with a sample of 47 Asian countries over the period 1994–2021, this study provides interesting findings and insightful policy implications. First, the findings confirm the EKC Hypothesis in all the models. Second, the results support the pollution halo hypothesis because trade openness has a significant negative impact on the ecological footprint in all the models. This implies that trade openness reduces environmental degradation. Also, the result revealed that an increase in ecological goods reduces ecological footprint in production, consumption, and distribution, as well as imports and exports, based on ecological footprint in Asia. Therefore, we conclude that environmental goods trade enhances environmental sustainability.