Trade Openness, Energy Use, and Environmental Degradation: Evidence from Nepal’s Time Series Analysis

Abstract

This research paper explores the relationship between trade openness, energy consumption, and environmental degradation in Nepal through a time-series analysis. Nepal, a developing country with a rapidly growing economy, faces significant challenges concerning environmental sustainability due to increasing energy use and trade liberalization. This paper investigates whether greater trade openness exacerbates environmental degradation, particularly through heightened energy demand and consumption. By employing time-series data analysis techniques such as cointegration and Granger causality tests, the study assesses how trade openness and energy consumption contribute to environmental degradation, measured by CO2 emissions, in Nepal. The results suggest a significant long-term relationship between these variables, with trade openness having a positive but indirect effect on environmental degradation, mainly through increased energy consumption. The findings underscore the importance of policy measures aimed at decoupling economic growth from environmental harm in Nepal.