On the asymmetric effects of trade openness on CO2 emissions in SADC with a nonlinear ARDL approach

Abstract

In this study, the expected asymmetric relationship between trade openness and CO2 emissions is investigated for the Southern African Development Community (SADC). We make use of a nonlinear autoregressive distributed lag (NARDL) framework proposed to capture the short- and long-run asymmetries for increases and decreases in trade openness and its impact on CO2 emissions over the period 1960–2020. We proxy trade openness using an innovative approach that considers both a country’s trade share to GDP and its size of trade relative to world trade. Both short- and long-run nonlinearity are tested by deriving the positive and negative partial sum decompositions of the trade openness variable. The results show mixed evidence of asymmetric behaviour between trade openness and CO2 emissions. Long-run asymmetry is found for Botswana, Madagascar, Mozambique and Tanzania, while in Comoros, Namibia and South Africa, there is evidence of both short- and long-run asymmetry. The remaining cases (Angola, Democratic Republic of Congo (DRC), Lesotho, Malawi, Mauritius, Seychelles, Zambia and Zimbabwe) show ample evidence of symmetric behaviour and linear long-run relationships between trade openness and CO2 emissions. The policy implication is that the SADC member countries should amend and reinforce environmental policies that can promote production and trade of environmentally friendly goods. For instance, a “tax or subsidy” policy, which taxes the trading of environmentally damaging goods, while subsidizing the trading of eco-friendly goods, can be implemented.