**1. Introduction**

In the past few decades, South Asian countries have seen remarkable economic growth and development. This is attributable to financial sector reforms, industrialization, and expansion of foreign trade. The region's gross domestic product increased more than 17-fold—from 190.7 to 3241.9 billion US dollars from 1960 to 2020, with an average annual growth rate of 4.92%. It is noteworthy that this region's growth rate has been higher compared to the world's. Between 1961 and 1979, the world's growth rate was ahead of the growth rate of South Asian countries several times. However, this relationship changed from 1980 onwards, due to financial sector reform. In the early 1980s, financial sector reform, particularly banking sector reform, was initiated by South Asian countries to increase their competitiveness. As a result, policies have been adopted to restructure public sector banks and allow private sector banks to promote competition in the banking sector, and efforts have been taken to liberalize the financial sector [1]. Between 1980 and 2020, the South Asian region's growth rate was above the world's growth rate. Notably, only in 1984, 2000, and 2020 was the world's growth rate ahead of that of the South Asian region.

Although this region's growth performance is impressive, South Asia is globally perceived as an underprivileged region, where more than 50% of the world's poor live. To eliminate poverty and unemployment, the South Asian region supports fast economic

**Citation:** Jó ´zwik, B.; Kyophilavong, P.; Dash, A.K.; Gavryshkiv, A.V. Revisiting the Environmental Kuznets Curve Hypothesis in South Asian Countries: The Role of Energy Consumption and Trade Openness. *Energies* **2022**, *15*, 8709. https:// doi.org/10.3390/en15228709

Academic Editors: Junpeng Zhu and Xinlong Xu

Received: 29 September 2022 Accepted: 15 November 2022 Published: 19 November 2022

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growth. This, however, is done without assessing the vulnerabilities of the environment [2]. The curtailment of energy consumption is not an easy task as it slows down the economic growth and development of a country [3].

Noteworthy, one of the necessary components of the economic growth of a country is trade openness and expansion in foreign trade, which enhances economic activities and energy demand [4]. Trade openness enables many underdeveloped or developing countries to import the latest technology from developed nations, which in turn helps them to produce more output while lowering energy intensity. Trade openness may simultaneously determine income and environmental quality. In South Asian countries, the volume of trade has shown an increasing trend since the early 1980s, which might be due to the financial sector reform in 1980. The merchandise trade, which is the combination of exports and imports, worth 6.6 billion US dollars in 1960, increased to 39.9 billion US dollars in 1980 and reached 1083 billion US dollars in 2018. At the same time, the total amount of CO2 emissions increased from 0.26 to 1.53 metric tons per capita from 2006 to 2018. In 2018, South Asian countries exported 41% of manufactured products [5]. Trade openness leads to deterioration of the environmental quality due to large-scale production of merchandise goods, which causes higher energy consumption and CO2 emissions.

Foreign trade expansion and industrialization results in a growing demand for energy consumption. For example, the total fossil fuel energy consumption in the South Asian region amounted to 33.87% in 1971 and more than doubled in 2014 to 71.52%. The consensus believes that the consumption of fossil fuels (coal, natural gas and oil) led to a rapid increase in CO2 emissions, disrupting environmentally sustainable growth in South Asia. India, Bangladesh, Pakistan, and Sri Lanka consume more fossil fuel compared with other countries of that region. South Asia's percentage share of the world's fossil fuel consumption increased from 40 to 88% from 1971 to 2014.

Many studies have been conducted on the environmental Kuznets curve hypothesis in South Asian countries; for example, the recently published studies by Sadiq et al. [6], Ali et al. [7], Mehmood et al. [8], and Tan et al. [9]. However, the empirical results for those countries are mixed. Most researchers have used the conventional cointegration approaches. In this study, we make several contributions to the current literature. First, we used a method that does not ignore the asymmetry effect. Second, we consider the roles of energy consumption and asymmetric shocks in trade openness in the environmental Kuznets curve. Third, we describe how government programs could influence environmental quality, especially in India and Pakistan, where the long-run coefficient for squared GDP per capita is negative and significant. These coefficients indicate that we should expect increased environmental quality.

Our aim is to identify long-run and short-run relationships between environmental degradation, economic growth, energy consumption, and trade openness in South Asian countries. We examine annual data for four South Asian countries (India, Bangladesh, Sri Lanka, and Pakistan) for the period between 1971 and 2014. The selection of the time period and sample was determined by data availability. All annual time series data come from the World Bank collection of development indicators.

The remainder of the paper is structured as follows: Section 2 reviews literature on environmental degradation in South Asian countries and the linkages between energy consumption, trade openness, and carbon dioxide emissions; Section 3 describes the data and methodology; Section 4 presents the empirical results. In this section, we present both linear and non-linear ARDL models. Section 5 includes conclusions and highlights policy implications.
