The Impact of Environmental Performance and Institutional Quality on Comparative Advantage of Coal Producing Countries

Abstract

The significant role of CO2 emissions in global warming and the substantial contribution of coal as a major source of CO2 in the atmosphere necessitate a closer examination of environmental policies aimed at reducing coal consumption. Existing literature predominantly focuses on conventional factors such as price, production, demand, and reserves when explaining coal trade, but fails to consider non-conventional factors such as a country's environmental policies and quality of governance. This study aims to fill this research gap by investigating the impact of environmental policies and institutional quality on coal trade. To achieve the objective of study yearly data spanning from 2000 to 2018 for 29 coal producing countries was collected and analyzed. Year 2000 is the time when coal consumption started rising and continued till 2018. The findings of this research indicate that environmental performance and institutional quality, in addition to conventional factors, significantly impact the comparative advantage of coal-producing countries. Notably, improved environmental performance negatively affects a country's comparative advantage, while better institutional quality has a positive influence. Furthermore, while coal reserves positively impact comparative advantage, domestic demand has a negative effect. The findings of study pronounce that countries must deploy stringent environmental policies to make coal less competitive and encourage nations to shift to other renewable energy resources which will help in reducing CO2 emission in the atmosphere.