Nexus between trade and environmental quality in sub-saharan Africa: Evidence from panel GMM

Abstract

Environmental sustainability is a burning fact worldwide, especially in developing nations. Equitable economic development, environmental protection, energy efficiency and security have been placed at the apex of economic discussant and policy formulation. This paper establishes the relationship between trade and environmental quality in Sub-Saharan Africa (SSA). Following the Environmental Kuznets Curve (EKC) theory, we investigate the existence of an inverted U-shape correlation between income per capita growth and nitrous oxide (N2O), agricultural methane (ACH4), and carbon dioxide (CO2) emissions to ascertain the presence of EKC. We also analyze how trade variables, income per capita growth, energy intensity, foreign direct investment, human capital, and CO2 emissions are related. The results show that trade significantly increases N2O, ACH4, and CO2 emissions for the overall sample of SSA and its income groups [Upper-Middle-Income Countries (UMIC), Lower-Middle-Income Countries (LMIC), and Low-Income Countries (LIC)] using a panel GMM. This paper concludes that reducing emissions is feasible in the future as shown by the existence of the EKC, and trade has a consistently negative impact on the environment in SSA countries, regardless of wealth level. On the policy note, the study suggested that domestic trade liberalization and foreign ownership in the economy play a detrimental role, and thus industrialization has to ensure energy efficiency and energy security.