Birds of a Feather Flock Together: Economic Development, Trading Network, and Carbon Emissions

Using data from 144 countries from 2002 to 2019, we employ a bilateral trade matrix to capture the link between trade, economic development, and carbon emissions. We find evidence that countries engaged in trade are associated with greater emissions when their trading partners experience an increase in economic development. Specifically, we find that emissions decreased within a trading network of developed countries and increased within a trading network of developing countries. Our findings suggest the prospect of forming multi-tier Climate Clubs – designed along Nordhaus (2015, 2021) - where trade agreements are tied to members’ commitment to reduce emissions based on their development status and technological transfers between coalitions.