An Emperical Investigation of the Environmental Effects of Economic Growth, Trade and Fdi in Ssa A Panel Gmm Approach.

Abstract

Considering the need for economic growth with its accompanying rapid globalization in developing countries, their effects on the environment remain an issue of enormous concern to both economists and environmentalists. This study empirically explores the interrelations between economic growth, trade openness, foreign direct investment and the environment in SSA. The study also examines the joint effect of these variables within the various sub-regional blocks in SSA and whether or not there is evidence of an EKC relationship within the sub-regional blocks. Panel data from thirty-seven (37) sub-Saharan African countries for the period of 1990 to 2013 is used. In order to have a comprehensive outlook of the environment, the study considers two perspectives of the environment, namely environmental quality and sustainability. Specifically, per capita CO2 emissions was used as a proxy for environmental quality whiles Adjusted Net Savings (ANS) was used as a proxy for sustainability. The system GMM estimation technique is employed by the study in order to account for time series variations in the data as well as capture the unobserved country-specific time-invariant effects. The problem of endogeneity in the estimation model is also controlled for with the use of the GMM estimation technique. The estimation results from this study show a positive relationship between economic growth, trade openness, FDI and environmental quality (CO2/P) but revealed an inverse relationship with environmental sustainability (ANS) for SSA. The study also found evidence of an EKC relationship for both environmental quality and sustainability in SSA. Furthermore, compared to ECOWAS, the possibility of the joint effect of all the variables in the sub-regional blocks having an unambiguous improvement on the environment is high for CEMAC and SADC but not in EAC. Finally, the EKC hypothesis is confirmed for per capita CO2 emissions and ANS in the other regional blocks compared to ECOWAS. However, with respect to ANS, the evidence of an EKC relationship is only significant for SADC. The study makes some practical recommendations necessary for the region to mitigate the adverse effects arising from the estimation results.