Institutional Quality and <scp>CO₂</scp> Emission–Trade Relations: Evidence from <scp>S</scp>ub‐<scp>S</scp>aharan <scp>A</scp>frica

TLDR

The study investigates how trade, institutional quality, and their interaction explain CO₂ emissions in 40 Sub‑Saharan African countries. The authors employ a system generalized method of moments panel analysis on the 40‑country dataset. Results show that institutional reforms consistently improve environmental outcomes, while trade’s effect on emissions depends on institutional quality—being detrimental in low‑quality settings and beneficial in high‑quality ones—so that sound institutions enable trade openness to promote growth and reduce pollution.

Abstract

Abstract This paper examines the roles of trade, institutional quality and their interactions in explaining carbon dioxide emissions in a panel sample of 40 S ub‐ S ahara A frican countries using the system generalised method of moments. We find that institutional reforms are unequivocally environmental improving. Meanwhile, the impacts of trade on the environment tend to depend on the institutional setting of a country. More specifically, trade openness is harmful to the environment in countries with low institutional quality and beneficial to the environment in countries with high institutional quality. This means that institutional reforms are a perquisite for the countries with low institutional quality to actualise the beneficial environment effect of trade. As for the countries with adequate institutional quality, trade and institutions are reinforcing each other in bringing down pollution. From these results, we conclude that trade openness implemented in a sound institutional setting potentially brings better trade, more growth and better environment.