Assessing the Economic Implications of Free Trade on Environmental Quality: Empirical Evidence from Africa

Free trade has been identified as an effective conduit for enhancing economic growth and development. However, encouraging free trade has several environmental implications. As African countries commit to implementing the African Continental Free Trade Area (AfCFTA) agreement, the need arises for research to be conducted into assessing the implications of the expected increase in free trade on the environment. It is against this backdrop, as well as the paucity of literature in the subject area, that the study seeks to assess the economic implications of free trade arising from preferential trade agreements (PTAs) on environmental quality in Africa. The study further attempts to establish the effect of institutional quality on environmental quality in Africa. The study’s theoretical framework is based on the trade-environment nexus model developed by Antweiler (AER 91:877–908, 2001) and employs the panel ARDL model for analysis, using data on thirty African countries, over the period 1990–2016. Findings from the study revealed that negative trade-induced scale effect and composition effect dominates the positive trade-induced technique, thereby, suggesting that free trade is detrimental to environment quality in the long-run, using natural resource depletion and carbon dioxide as measures of environmental quality. The study further found improvement in institutional quality (through enhancement in regulatory quality) to have a positive effect on environmental quality. The study recommends that afforestation policies should form an integral part of governments’ developmental agenda in Africa. Also, government policies should be geared towards encouraging businesses to adopt green technologies, whereas households are motivated to employ and sustain the use of clean energy.