The environmental effects of trade in natural resources: Empirical evidence from Africa

Many African countries have, in recent decades, increased exports to the world, particularly to China. In some cases, this trend has also been accompanied by an increase in inward foreign direct investment (FDI), especially in resource rich countries. At the same time, a large number of countries are still faced with the challenges of reducing poverty and unemployment. Both the rise in exports and the fight to reduce poverty through higher growth could suggest possible channels of negative impact on the environment in these countries.

This paper examines the impact of natural resource export on environmental quality in a large group of African countries. We focus on the export of oil (fuel) and forest products and use two indicators of environmental quality, net forest depletion and CO2 (carbon dioxide) emissions and data from 19 African countries covering the period 1985-2010. The main control variables include institutional quality, income per capita, and inward FDI. We use fixed-effects and Arellano-Bover system GMM (GMM-SYS) estimators and explore the effects of oil and forest products export on environmental quality. We also investigate whether the institutional quality mitigates these effects.

The preliminary empirical results indicate that fuel exports have a negative effect on environmental quality in Africa. We find support for the well-known environmental Kuznets curve in the case of pollution (CO2 emissions) but not in the case of net forest depletion (deforestation). Furthermore, political institutional quality has an indirect positive effect on the environment through its interaction with trade. We comment on the empirical results and discuss the policy implications of the findings.