Does trade openness drive green transformation? Heterogeneous panel evidence from a multidimensional index across countries

Whether trade openness advances or undermines environmental quality remains a contested issue in environmental economics. This study examines the relationship between trade openness and multidimensional green economy performance across 157 countries during 2000–2020. Unlike most trade – environment studies that rely primarily on CO2 emissions, green performance is measured using a composite Green Economy Index based on Sarma’s (2016) achievement framework, encompassing climate mitigation and social equity, sectoral decarbonization, ESG-oriented investment, and environmental health. To capture both heterogeneous predictive relationships and dynamic adjustment processes, the analysis combines panel causality techniques with a Panel Vector Autoregression (PVAR) framework. The results reveal no uniform global pattern: significant predictive relationships appear only in a subset of countries and vary across income groups and regions. Openness to green predictability is more common in low-income economies, whereas the reverse direction is more prevalent in high-income countries. The PVAR estimates indicate that trade openness exerts a positive, statistically significant short-run effect on green economy performance (β = 0.075, p = 0.019), whereas the reverse effect remains statistically insignificant. Overall, trade openness appears to facilitate green transition in some countries, although the strength and direction of this relationship vary considerably across countries and development contexts.