Trade policy and environmental quality in Africa: Aggregation issues and policy deductions

Abstract

The significance of the impact of trade on sustainable development cannot be overstated. Even though there is a large amount of literature examining the trade - environment connection, most of the studies that have been done so have primarily examined variables like trade openness and foreign direct investment, ignoring the impact of particular trade policy tools, like tariffs. Moreover, there is a pertinent concern about aggregation bias in aggregate estimations, which could lead to inaccurate assessments of the overall connections and potentially misguide policymakers. In contrast to the prevailing trend, this study delves into the influence of trade policy, specifically tariffs, on the environmental degradation in 20 African nations. The investigation also addresses the issue of aggregation bias, aiming to provide a comprehensive understanding of the trade policy-environment link. The panel long-run estimates, employing the PMG estimator, reveal a significantly negative influence of tariffs on ecological footprints. This suggests that, in this context, tariffs do not create market inefficiency but rather contribute to strengthening environmental quality in the African sub-region. The findings underscore the importance of considering specific trade policy instruments in environmental policymaking. Policymakers in the region are presented with an opportunity to strategically utilize tariffs as a tool to address environmental degradation issues. The study further highlights that the relationship is negative at the panel level but positive at some of the individual country-level, indicating the presence of aggregation bias in estimating the trade policy-environmental dilapidation association on a panel scale. As aggregation bias may lead to misguided environmental policies, policymakers are prevailed on to carefully consider both panel and individual country-particular level when formulating trade and environmental strategies.