Trade-induced environmental quality: the role of factor endowment and environmental regulation in Africa

ABSTRACT

This paper investigates whether trade liberalization affects environmental quality (proxied by CO₂ emissions) and, if so, whether the trade-induced emissions originate from differences in countries’ economic growth, factor endowment or environmental regulations. We used panel data on 30 African countries and the Generalized Method of Moment estimation techniques. Though we found that trade openness is associated with elevated levels of CO₂ emissions due to comparative advantage originating from factor endowment (i.e. composition effect), the overall effects of trade are seen to have some beneficial effects on environmental quality. Also, relative economic growth lowers emissions (scale effect) perhaps due to technology transfer. Furthermore, the differences in environmental regulations do not directly affect CO₂ emissions while past levels of CO₂ emissions significantly increase the current level due to the cumulative effect of CO₂ emissions. To achieve a significant reduction in emissions, environmental regulations must be enforced in tandem with growth enhancing and production technology choice policies.

KEYWORDS:

• Environmental quality
• trade openness
• environmental regulation
• factor endowment
• carbon dioxide

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes on contributors

Daniel Kwabena Twerefou was born in Koforidua, Ghana in 1966. He obtained his BSc and MSc Degrees in Mathematics from the Russian Friendship University in Moscow, Russia in 1994 and 1996, respectively. In 1996, he commenced a PhD in Economics at the Moscow State University of Instrument Engineering and Computer Science, Moscow, Russia and successfully completed in 1999. He worked previously as the Dean of Applied Science at Accra Polytechnic (now Accra Technical University) and currently a Senior Lecturer at the Department of Economics, University of Ghana. He is a member of the European Association of Environmental and Resource Economists and the Deputy Director of the Environment for Development (EfD) Initiative in Ghana. His research interests are climate change, extractive industry, renewable energy and sustainable development.

Wisdom Akpalu received his PhD in Economics from the University of Gothenburg, Sweden, in 2006. Wisdom became Associate Professor of Economics at State University of New York (SUNY) – Farmingdale, New York, in 2012. In 2013, the United Nations University – World Institute for Development Economics Research (UNU-WIDER) recruited him to manage a PhD programme in Development Economics at the University of Ghana. He is the current president of the African Association of Environmental and Resource Economists (AFAERE) and the Director of the Environment for Development (EfD) centre in Ghana. Wisdom is widely published. His research interests are within the fields of environment and natural resource economics, and social economics.

Angela Cindy Emefa Mensah, born in 1989 in Volta Region of Ghana, Angela Cindy Emefa Mensah holds a Bachelor of Education in Social Science (Economics and Mathematics) from the University of Cape Coast and received a Master of Philosophy (MPhil) in Economics from the University of Ghana. She is a member of the African Association of Environmental and Resource Economists (AFAERE) and the Environment for Development (EfD) Initiative in Ghana. Her research interests are within the field of Natural resources and environmental economics and empirical econometric analysis. She currently works as a research assistant in the United Nations University’s World Institute for Development Economics Research (UNU-WIDER) office at the University of Ghana.

Notes

1 A multicollinearity test was performed, and we found high and significant correlation between GDP and an interaction variable that is constructed as the interaction between Trade Openness, Relative Capital-Labor ratio and Relative GDP per capita. However, the exclusion of that variable from the regression does not change the significance level of the coefficient of GDP and vice versa (see Table 2).

2 Egypt, Tunisia, Angola, Cameroon, Côte d’Ivoire, Gambia, Ghana, Lybia, Nigeria, Senegal, Sierra Leone, Togo, Congo, Democratic Republic of Congo, Gabon, Eritrea, Ethiopia, Djibouti, Sudan, Uganda, Kenya, Tanzania, Morocco, Mauritius, Botswana, Mozambique, Namibia, South Africa, Zambia and Zimbabwe.

3 https://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic-Documents/Brochure_Industrialiser_l_Afrique-En.pdf (Accessed 04/07/2018)