Trade-Induced Environmental Effects: The Role of Factor Endowment and Environmental Regulation

Abstract

This study investigates the effect of economic growth and international trade openness on carbon dioxide (CO2), methane (CH4), nitrogen oxide (N2O) and the fluorinated gases (F-gases) emissions. It also examines whether the trade-induced emissions originate from countries‟ relative factor endowment or/and environmental regulations using panel data for 18 African countries, spanning from 1990 to 2014 and the Generalized Method of Moment (GMM) estimation technique. The results indicate that with the exception of CO2 where income negatively and significantly impacted on emissions, income did not significantly explain emission of the other gases. With the exception of CH4whose trade impact appears to be inconclusive, trade impacted positively on emission of all the other gases under consideration, signifying that increased trade openness is detrimental to the environmental quality. A notable conclusion is that the trade-induced pollutions originated from factor endowment effect and not the environmental regulation effect. It is therefore recommended that countries in Africa should strengthen existing institutions in charge of ensuring environmental protection and enforce stricter environmental regulations, which will require polluting firms to pay abatement cost. Also, to environmentally sustain income growth, modification should be made to input compositions that will ensure efficient energy use.