Trade Structure and Energy Performance: How Import Diversification Shapes Efficiency in Central Asian Economies

Abstract

This study examines the relationship between trade structure, economic factors, and CO₂ intensity in Central Asian economies from 2004 to 2023, employing both static (FEM, REM, KLS) and dynamic (Sys-GMM) estimation approaches. The analysis reveals three key findings: First, foreign direct investment (FDI) consistently increases CO₂ intensity (coefficients 0.055–0.13 across models), confirming the pollution haven hypothesis in the region's resource-dependent development path. Second, import diversification shows significant emission reduction effects, with the dynamic Sys-GMM model (-10.521) revealing substantially larger long-term benefits than static models (-0.7 to -1.393), suggesting conventional analyses underestimate its cumulative impact through technology diffusion and efficiency gains. Third, the high persistence coefficient (0.902) demonstrates strong path dependence in energy systems, explaining the slow pace of decarburization despite policy reforms. The study also finds that green finance (coefficient range: 0.158–0.576) may be inadvertently reinforcing carbon-intensive patterns, potentially due to misaligned funding priorities, insufficient regulatory oversight, or the financing of projects that lack verifiable environmental benefits. This implies that in its present nature, there is an opportunity that green finance will be prone to be halted by the greenwashing phenomenon or be used in building infrastructure that will not have a significant impulse in the realms of decarburization, which is why more rigid environmental protection regulations and accountability measures of green financial capital flows should be put in place. These results are important because current trends of investment will trigger high carbon pathways, but a combination of strategic trade (import) diversification and selective policy changes could make the transition to low carbon faster in Central Asia. The longitudinal study that took 20 years will produce unique knowledge about how the trade-environment nexus is changing in this under-researched part of the world at a critical moment of economic transformation.