Export Diversification and Its Environmental Effects in Iran

Investigating the effect of foreign trade on emissions of pollution is a topic that has been extensively studied in empirical research. In recent years, however, some researchers have shown that not only the quantitative development of trade but also its diversity can have significant environmental effects. For this reason, this study examines the long run effect and short run dynamics of export diversification along with trade openness, as the two main components of trade, on the emission of pollution in Iran during the period 1984-2016 in Auto Regressive Distributed Lag (ARDL) model. Based on the findings of the estimation in long run, trade openness, and energy consumption have had a positive effect on emissions of pollution, but diversification of exports has reduced emissions. In addition, the negative coefficient of the interaction effect of trade openness and export diversification in the model, indicates that export diversification can reduce the impact of trade openness on emissions of pollution, which can be one of the desirable effects of diversification in the export basket. The results of the error correction model also show the negative effect of export diversification growth on pollution growth, with a one period delay. Also, the coefficient of error correction term indicates high adjustment speed to long-term equilibrium.