Exploring the potential environmental impact of the recently established African continental free trade agreement on ECOWAS members' nations

Abstract

AbstractThis research aims to comprehensively analyze the potential environmental impact of the African Continental Free Trade Agreement (AfCFTA) in Economic Community of West African States (ECOWAS) countries. To achieve this, a two‐model approach is employed, consisting of a fixed and random effects model covering the period of 1990 to 2021 and a difference‐in‐differences (DID) model focusing on the period of 2014 to 2021. The fixed and random effects model provides insights into long‐term trends and country‐specific effects, while the DID model assesses short‐term changes and estimates causal relationship effects of the AfCFTA by comparing changes in environmental indicators before and after the AfCFTA establishment. Our conclusion is based on the random effect, which was determined to be more appropriate following the Hausman diagnostic test and the DID results. The random effect model results show that GDP increases environmental degradation, whereas GDP squared improves environmental quality. Trade openness and energy consumption improve the region's environmental quality, while foreign direct investment inflows damage the environment. The DID results indicate that the treatment variable (establishment of AfCFTA) has the potential of worsening the environment while the control variable (ECOWAS member) has the potential of improving environmental quality. The interaction variable (treatment × control) enhances environmental quality. The study suggests that the trade agreement has the potential to contribute to sustainable development and environmental protection. Policymakers should seize this opportunity by implementing environmental safeguards, promoting sustainable trade practices, fostering regional collaboration, and ensuring effective monitoring and evaluation mechanisms.