Does Trade Openness Reduce Climate Vulnerability? Evidence From a Global Panel

This paper examines the relationship between trade openness and climate vulnerability using a panel of 96 countries over the period 1995–2019. We combine entropy balancing for continuous treatments with instrumental variable techniques in order to address both selection on observables and potential endogeneity in the estimation of trade effects. Climate vulnerability is measured using the Global Adaptation Index, while trade openness is captured by the composite trade share index proposed by Squalli and Wilson. The results indicate that greater trade openness is associated with a statistically and economically significant reduction in climate vulnerability. The relationship is nonlinear, steep at low levels of openness and flat beyond, and the slope is significantly steeper in low‐income economies, where openness is lowest. Instrumental variable estimates that use distance to the sea as an instrument, with regional and year fixed effects, are larger in magnitude than the baseline estimates. Subject to the validity of the exclusion restriction, this pattern is compatible with an attenuation of conventional estimates, although it does not establish it. Interaction results further indicate that the negative association between openness and vulnerability is stronger where domestic absorptive capacities are higher, including governance quality, social and institutional readiness, skills, innovation, industrial development, and access to finance. These moderation results are consistent with, but do not by themselves establish, the view that trade openness contributes to climate resilience primarily by facilitating structural transformation and adaptive capacity rather than by directly reducing exposure to climate risks. The paper contributes to the trade and climate literature by shifting the focus from emissions to vulnerability and by clarifying the conditions under which openness becomes a resilience‐enhancing rather than a fragility‐amplifying force.