The Impact of Trade Liberalization on Environmental Quality: Empirical Evidence from SADC Countries (1990-2016)

The impact of trade liberalization on environmental quality has received considerable attention, both in policy debate and in the theoretical literature. Nevertheless, the empirical evidence on the issue remains mixed and lagged. This study adds to the literature by unearthing the relationships and decomposing the effect into scale, technique and composition in the Southern African Development Community (SADC) region using OLS with Panel Corrected Standard Errors (PCSE) estimation technique. Aggregated panel data on carbon dioxide emission and on natural resource depletion spanning from 1990-2016 are used as proxies for environmental quality. The study findings provide evidence supporting the Environmental Kuznets Curve (EKC) hypothesis in the case of natural resource depletion. However, the EKC model is not present in the case of carbon dioxide emission. The results also indicate that trade liberalization has detrimental effect on environmental quality as a result of a positive scale effect of trade overriding the negative technique effect of trade. This finding appears to confirm the pollution haven hypothesis. Also, energy consumption is positively related with carbon dioxide emission and negatively related with natural resource depletion. Sustainable development assistance and urbanization have a negative relationship with carbon dioxide emissions. On the other hand, sustainable development assistance has a positive effect on natural resource depletion. Therefore, the study recommends that further trade liberalization policies in developing countries in Africa should be accompanied by strict enforcement of environmental regulations in order to avert the adverse impact of trade on the environment. The Member States should be mindful of the kind of multinational corporations allowed to produce and should allow corporations whose activities produce relatively less emissions or nearly produce no pollution.