Environment challenges in Africa: further dimensions to the trade, MNCs and energy debate

Abstract

Purpose – The purpose of this paper is to examine the linkage between environmental challenges, multinational corporations (MNCs) activities, trade and energy in Africa; and further elaborate on the role of institutions, as an intervening variable. Design/methodology/approach – In this study, the authors extended the Environmental Kuznets Curve (EKC) model by including indicators of the presence of MNCs, trade and energy in the basic EKC model that has measures of environmental pollution (CO 2 ), economic growth (gross domestic product per capita) and its squared value. The role of institutions was also considered and included as an inter-mediating variable. This model was tested on a sample of 27 African countries, for the period 1996-2010. The systems GMM was applied for the empirical analysis. This approach was aimed at circumventing the possibility of rever se causality and endogenous explanat ory variables-such as institutions. Findings – Trade and MNCs ’ activities may not have much contemporaneous impact on the environment. However, their lagged values have adverse and significant influence on the current values of environmental challenge. This implies that environmental policies regarding trade and MNCs require time response lag. Energy was significant only at contemporaneous value but not at its lagged value. Institutional development helps to suppress the negative excesses (like pollution) from the activities of trade, MNCs and energy, and consequently reduce environmental pollution. Originality/value – This paper included the role of institutions in the environmental pollution, trade, MNCs and energy debate. Empirical studies in this regard have inadvertently excluded this variable, but have, at best, included it as part of policy recommendations.