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Trade Openness and Energy Consumption: A Comparative Evidence from Developing and Developed Countries

There has been a rapid increase in global energy consumption, particularly given the wide acceptance of international trade as a channel for economic growth and development. Yet, energy consumption is a critical distinguishing variable between developing and developed nations. This study investigated the comparative impact of trade openness on energy consumption in developing and developed countries. Selected countries (developing and developed) for 1990 to 2023 in a panel study were estimated using the PMG, GM, and DFE models. Results from the various estimation methods showed insignificant differences. For both developed and developing countries, historical energy consumption patterns play a crucial role, indicating complementarity. For developing countries, trade openness and economic development emerged as strong key positive drivers of renewable energy use, especially in the short run, highlighting their role in facilitating technology diffusion and income-driven demand for cleaner energy sources, and environmental sustainability showed sensitivity to country-specific heterogeneity. For the developed countries, environmental sustainability and trade openness showed key positive drivers of renewable energy use, especially in the short run, and GDP per capita played a strong supportive role, reflecting income-driven demand for cleaner energy. Therefore, following Grossman’s model, an increase in trade openness leads to higher energy use but lower levels of energy intensity. The study advocated, among others, for Green Trade openness. The developing countries are to concentrate on managing trade dynamics with energy policies, while developed countries are to concentrate on aligning trade policies with sustainability goals.