An Empirical Investigation of the Pollution Haven-Halo Nexus in Eastern and Southern Africa

Abstract

This study looks into the relationship between trade and pollution in Eastern and Southern Africa from 1977 to 2016. This timeframe is particularly relevant as it was marked by rising CO₂ emissions despite major climate agreements such as the Kyoto Protocol (1997), Reducing Emissions from Deforestation and Forest Degradation (REDD+, 2007), as well as the Paris Agreement (2015). Using time-series data and the Fully Modified Least Squares (FMOLS) method, the analysis tests the Pollution Halo and Pollution Haven Hypotheses with CO₂ emissions as the regressand while trade openness, agricultural expansion, Foreign Direct Investment (FDI) and structural breaks are independent variables. Findings indicate that trade openness significantly raises CO₂ emissions, with a coefficient of 5632.72 kilotonnes (p<0.01), supporting the Pollution Haven Hypothesis. Agricultural expansion has an even more pronounced impact, with a coefficient of 60329.08 kilotonnes (p<0.01), aligning with the Heckscher-Ohlin (H-O) model, which posits that land-rich countries tend to specialize in land intensive sectors. FDI, however, exhibits a negative but statistically insignificant relationship with emissions (coefficient = -4190.02, p = 0.5531), thus offering limited evidence for either the Pollution Haven or Pollution Halo Hypothesis in this context. The structural break variable (BREAKS), included to account for major policy or economic shifts, also has a strong and significant positive effect (coefficient = 130888.9, p<0.01), indicating that such shifts contributed to higher emissions. The model explains approximately 94% of the variation in emissions (R² = 0.9413), underscoring the robust explanatory power of the included variables. These findings highlight the environmental risks of trade-driven agricultural expansion and emphasize the urgent need for stronger environmental regulation, sustainable agriculture practices, green trade and FDI policies, and regional collaboration, including the implementation of carbon pricing. The study calls for further research into the quality of institutional frameworks, the specific characteristics of FDI, and sector-specific environmental impacts to inform more targeted and sustainable policy interventions.