The effects of economic globalization on greenhouse gas emissions: an empirical analysis

Abstract

When a coin is flipped, there are only two possible outcomes: heads or tails. There is no consideration that the wind direction, or even the coin’s weight, might influence the result. This is similar to the current discussion on economic globalization and GHG emissions, which is a key limitation of existing research. Studies argue whether economic globalization increases or decreases emissions, often failing to recognize that there are nuances associated with nations’ absorption of economic globalization, and ultimately, how it affects the environment. Therefore, this study addresses this limitation by examining the effects of economic globalization on greenhouse gas emissions first globally, then on a subset of sub-Saharan Africa (SSA), accounting for how economic structures influence the environmental absorption of globalization. Using secondary panel data for 103 countries (2000–2023), the study employs the Fixed Effects Model as a benchmark and the Panel Corrected Standard Error (PCSE) model to account for contemporaneous correlation. The empirical results reveal that while economic globalization generally reduces emissions, there is also a significant global split. In developed countries, economic globalization reduces greenhouse gas emissions, while it exacerbates them in the developing world. Further findings reveal that increased per capita income is a necessary factor in reducing emissions. The central finding is the “structural neutrality” of SSA. In SSA, the net effects of trade openness and FDI are near-zero. Specifically, the SSA-specific mitigating factor cancels out the general pollution haven tendency found in other developing nations. This suggests that SSA is not a significant pollution haven, primarily due to its extractive economic profile rather than carbon-intensive manufacturing. The study concludes that because globalization is environmentally inert in SSA, governments should prioritize growth-enhancing policies which will facilitate the transition to higher income per capita levels necessary for environmental remediation. SSA governments must invest in renewable energy, quality infrastructure, and human capital.