Energy Economics 92 (2020) 104966

Contents lists available at ScienceDirect

Energy Economics

journal homepage: www.elsevier.com/locate/eneeco

The pollution concern in the era of globalization: Do the contribution of

foreign direct investment and trade openness matter?
Sofien Tiba a,⁎, Fateh Belaid b
a
Faculty of Economics and Management, University of Sfax, Tunisia
b
Lille Catholic University, Faculty of Management, Economics & Sciences, UMR 9221-LEM-Lille Économie Management, 60 Boulevard Vouban, Lille 59016, France

a r t i c l e i n f o a b s t r a c t

Article history: This analysis aims to treat the contribution of the foreign direct investment inflows and trade openness to envi-
Received 31 March 2019 ronmental degradation. Drawing on the data for 27 African countries over the period from 1990 to 2013, we de-
Received in revised form 21 September 2020 velop an empirical model based on a set of panel methods. This approach includes Westerlund (2007) panel
Accepted 26 September 2020
cointegration technic, Common Correlated Effects Mean Group (CCE-MG) estimation procedure, and the Granger
Available online 6 October 2020
causality test. In terms of long-term causality, our findings reveal bidirectional long-term causality between CO2/
Keywords:
NOx emissions, GDP, trade openness, and foreign direct investment. Besides, in the short-run, the results recorded
Foreign direct investment a unidirectional causality running from GDP to CO2, and from FDI to CO2. However, bidirectional causality nexus
Trade openness was detected between trade openness and CO2. Additionally, the findings portray bidirectional causality between
CO2 emissions GDP and NOx and between trade openness and NOx, while a unidirectional causality from foreign direct invest-
NOx emissions ment to NOx. Our analysis substantiates the importance of the foreign direct investment inflows and trade open-
Environmental quality ness in mitigating the adverse effect of heavy pollutant activities and resolving the environmental puzzle
(growing without polluting) consistent with the Millennium Development Goals (MGDs) of the UN background.
© 2020 Elsevier B.V. All rights reserved.

1. Introduction nexus. Theoretically, this nexus is known as the “Environmental

Global warming and climate change constitute the main concern of
several discourses as a holistic threat, especially, this globalized era
with the demolition of borders and the reduction of spatial heterogene-
ity between nations. As a response to this worldwide threat, and seen as
an emergency, the 1997 Kyoto protocol aimed to reduce greenhouse
gases that greatly contribute to climate change. The resulting recom-
mendation of the protocol suggested the reduction of the pollutant
emissions to 5.2% lower than the pollutant emissions level of 1990 for
the spanning time 2008–2012. Further, the carbon dioxide emissions
(CO2) contribute to climate change by around 58.8% (World Bank,
2014). Besides, the agreement of Paris 2016, which aims to curb the
GHG levels, goes in the same spirit of the Kyoto protocol to fight climate
change and global warming issues. For this reason, each member state
signed this agreement, should show his intuition, ultimate engagement,
and commitment to the global warming threat. In this context, the
nexus between economic growth and environmental quality is widely
stressed empirically with conflicting results and without reaching any
unanimous consensus about the existence or not of a significant
⁎ Corresponding author.
E-mail addresses: sofienetiba@gmail.com (S. Tiba), fateh.belaid@univ-catholille.fr
(F. Belaid).
Kuznets Curve”.
The EKC theory implies the existence of a monotonic nexus among
the wealth and environmental indicators. This relationship has been
firstly treated by Grossman and Krueger (1991), where their results
found an inverted U-shape link among economic growth and income
inequality, which is proved by Kuznets (1955). Nevertheless, to validate
the EKC hypothesis, a quadratic relationship is required. The theoretical
background hidden behind the EKC hypothesis is justified by the transi-
tion process of the economy during the development pathway. Eco-
nomic growth and pollution level rise conjointly during the first stages
of economic development. At this level, the environmental quality has
been considered as a luxury good, while the households are more
attracted to the necessary goods. Furthermore, in more advanced stages
of development, and after reaching a specific threshold, the environ-
ment becomes increasingly claimed. Based on the findings of
Dasgupta et al. (2002), at further stages of development, governments
should set strict regulations to make a tradeoff between sustained eco-
nomic growth and sustainable ecological quality. Several studies have
examined the EKC hypothesis1 by applying diverse econometric tech-
niques (e.g. Ang (2007, 2008); Lee and Lee (2009); Akbostanci et al.
(2009); He and Richard (2010); Iwata et al. (2011); Halicioglu (2009);
1
For an exhaustive theory listing on the EKC hypothesis, please see Tiba and Omri
(2016).

https://doi.org/10.1016/j.eneco.2020.104966
0140-9883/© 2020 Elsevier B.V. All rights reserved.
S. Tiba and F. Belaid
Jalil and Mahmud (2009); Fodha and Zaghdoud (2010); Lau et al.
(2014); Sahli and Ben Rejeb (2015)). Furthermore, many events have
been undertaken by the United Nations Organization about the emerg-
ing of the sustainability issue as the ultimate aim which characterized
this current millennium. In the same pathway, the highlights of Tiba
et al. (2015) pointed out the importance of foreign direct investment in-
flows, and trade in environmental sustainability is recognized. Hence,
these two factors are considered as a “driving force lies behind the success
story of technologies transfer and providing the additional resources and
capacities to build the structures of development success”. Further, it
seems to be crucial to integrate the foreign direct investment inflows
and trade openness as keys determinants of the environmental sustain-
ability issue. Besides, many scholars' undertaken humble efforts to ex-
plain the origin of the climate change phenomenon and how it can be
avoided. Hence, the sustainability theory reveals that this dilemma is
closely related to the resources or assets portfolio management's way
of the economy. On the other hand, the re-emergence of the ecological
dilemma was seen as a stylized fact of outcomes of the Rio Earth Summit
2012. Accordingly, the sustainability theory underlined the results gen-
erated by polluting activities and high environmental degradation level
for maintaining prosperity expansion. There is a robust causality among
these two streams, which appeared as a contradictory but seemingly ro-
bust fact of a significant negative link between economic development
and ecological sustainability. Other contributions of the economic the-
ory have stressed the crucial roles played by the foreign direct invest-
ment inflows and trade openness in terms of mitigating the adverse
effect of heavy pollutant activities and resolving the environmental puz-
zle (growing the economy without polluting the environment) consistent
with the Millennium Development Goals (MDGs) of the UN
background.
In this context, the impact of foreign direct investment inflows on
the environmental factor has been widely stressed over the last decades.
Several surveys have been investigated the impact of foreign direct in-
vestment on the pollutant emissions at the individual and global scale,
without reaching any anonymous consensus about the existence (posi-
tive or negative) or absence of an effect. Lee (2009), Zhang (2011), Pao
and Tsai (2011), Al-mulali (2012), Hitam and Borhan (2012), Kivyiro
and Arminen (2014) Lee and Brahmasrene (2014), and Baek (2016),
among others, reveal the existence of a negative impact of FDI on envi-
ronmental quality using various techniques. In contrast, Tamazian et al.
(2009), Al-mulali and Tang (2013), Shahbaz et al. (2013), Sbia et al.
(2014), and Zhang and Zhou (2016) treated this issue recorded the
fact that the foreign direct investment leads to decreasing the pollution
level. However, Perkins and Neumayer (2009), Atici (2012), and Lee
(2013) reveal the absence of any signification effect or relationship be-
tween foreign direct investment and environmental quality. Even more,
several investigations have been treated the impact of trade openness
on the environmental quality at the individual and global scale, without
reaching any unanimous consensus about the existence (positive or
negative) or absence of a significant effect. Baek et al. (2009),
Copeland and Taylor (2003), and Tiba et al. (2015), Tiba and Frikha
(2018), among others, reveal the existence of a significant positive im-
pact of trade openness on environmental quality through the use of var-
ious techniques. In contrast, Kellenberg (2009), Managi and Kumar
(2009), and Boulatoff and Jenkins (2010) have treated this issue, and
they recorded the fact that trade openness leads to decreasing the pol-
lution level.
Even more, the EKC theory supposed a quadratic relationship be-
tween the environmental proxy and the output factor. Following
Apergis and Payne, 2009; Llorca and Meunié, 2009; Lean and Smyth,
2010; Du et al., 2012; Tiwari et al., 2013; Cho et al., 2014; Tiba et al.,
2015; Tiba and Frikha (2019a, 2019b, 2019c), we include the FDI and
trade openness as determinant variables of the pollution level. Our
study seeks to contribute to the Environmental Kuznets Curve thesis
by analyzing the contribution of foreign direct investment and trade
to pollution and taking into consideration the square of foreign direct
2
Energy Economics 92 (2020) 104966
investment and trade openness to detect the possible quadratic nexus
in contradiction of the most of studies which supposed a linear relation-
ship. Second, compared to the previous studies, our paper attempts to
employ the most recent technics of the second-generation estimators
in panel data that take into consideration the cross-sectional depen-
dence and slope homogeneity observed in the global panel. Specifically,
we investigate the quadratic relationship between the environmental
quality (which proxied by two measures: the CO2 and NOx), foreign di-
rect investment, and trade openness. To achieve the main aim, this
study employs the Westerlund (2007) panel cointegration methodol-
ogy to check the presence of long-run relationships. As well as, we use
the Cross Correlated Effects (CEE) and the Common Correlated Effects
Mean Group (CCE-MG) estimation procedures, and the Granger causal-
ity test for 27 African countries. The empirical analysis covers the period
1990–2013.
The rest of this article is structured as follows: Section 2 portrays the
model construction and data. Section 3 records the empirical facts and
discussions. Section 4 concludes the study and provides policy
implications.
2. Data and modeling construction
2.1. Data
Our study employs annual data related to 27 African countries,
namely: Algeria, Angola, Benin, Botswana, Cameroon, Congo Demo-
cratic Republic, Congo Republic, Cote d'Ivoire, Egypt, Eritrea, Ethiopia,
Gabon, Ghana, Kenya, Libya, Morocco, Mozambique, Namibia, Nigeria,
Senegal, South Africa, Sudan, Tanzania, Togo, Tunisia, Zambia, and
Zimbabwe for the period 1990–2013.2 The data are sourced from the
World Development Indicators (WDI 2018). The present study uses
the per capita real GDP in constant 2010 U.S. dollars to measure eco-
nomic growth. A per capita CO2 emission in metric tons and NOx the Ni-
trous oxide emissions in thousand metric tons of CO2 equivalent are
used to measure environmental degradation. Trade openness
(T) defined as export plus import divided by population to obtain per
capita foreign trade. Foreign direct investment net inflows (FDI) as a
share of GDP multiplied by GDP and divided by population to obtain
per capita FDI. Financial development (FD) is defined as domestic credit
provided to the private sector as a share of GDP multiplied by GDP and
divided by population to obtain per capita financial development. And
energy consumption (EC) is calculated by kg of oil equivalent per capita.
It's worth highlighting that all the variables are expressed in the loga-
rithmic form.
2.2. Model specification
The EKC theory is founded on the research carried by Simon
Kuznets, Nobel Laureate in Economics in the 1950s. Kuznets indicated
an inverted U-shaped linkage among per capita output and income in-
equality and shed light on the birth of EKC theory. In the early 1990s,
many contributions stated that there is, also, a similar linkage among
the output level and the environment, and recognized that such anal-
ysis is called EKC analysis (e.g. Shafik and Bandyopadhyay, 1992;
Panayotou, 1993; Grossman and Krueger, 1995. Since then, many sur-
veys have been carried out on various pollution measurements and in
numerous samples with different economic development paths. The
papers that investigated the EKC hypothesis used various environ-
mental damage proxies, like carbon dioxide emissions (CO2), nitrous
oxide emissions (N2O), Total Suspended Particulate (TSP), methane
emissions (CH4), sulfur dioxide emissions (SO2), and water waste
(e.g. Apergis and Payne, 2009; Llorca and Meunié, 2009; Lean and
Smyth, 2010; Du et al., 2012; Tiwari et al., 2013; Cho et al., 2014).
2
The selection of variables, sample, and the period in this study are chosen following
the economic theory and data availability.
S. Tiba and F. Belaid Energy Economics 92 (2020) 104966

Additionally, these papers applied numerous economic indicators,

such as industrial output, per capita income, trade openness, energy
use, foreign direct investments, and financial development. Consistent
with the EKC hypothesis, the majority of the previous papers
employed the output and its square. These two proxies are included
to verify that if an inverted U-shaped link among the environmental
degradation measure and income with its square has existed, thus
the EKC assumption is well verified. Moreover, the majority of the
existing literature confirmed the presence of the EKC assumption in
high-and-middle-income countries.
The extensive conventional EKC literature uses various forms where
findings could be evaluated with the significance of the parameters
computed and the presence or absence of a turning point (Agras and
Chapman, 1999). Following Tiba et al. (2015), we include other funda-
mental aspects that can significantly affect the quality of environments,
such as foreign direct investment inflows and trade openness. More-
over, Tiba et al.'s pointed out that these two aspects are considered as
a “driving force lies behind the success story of technologies transfer and
providing the additional resources and capacities to build the structures
of development success”. Hence, trade openness and foreign direct in-
vestment play a great role in terms of improving environmental quality.
Also, to validate the inverted U-shaped (for the CO2 and NOx) of the EKC
Fig. 1. Modeling strategy.
theory, we use the energy consumption and financial development
(see: Apergis and Payne, 2009; Llorca and Meunié, 2009; Sadorsky,
2009; Lean and Smyth, 2010; Du et al., 2012; Jayanthakumaran et al.,
2012; Shahbaz et al., 2013; Tiwari et al., 2013; Cho et al., 2014; Tiba 2.4. Panel unit root tests
et al., 2015). So the EKC specification can be expressed as follow:
After treating the cross-sectional dependency question, the investi-
gation of the integration properties of the data is a fundamental step
Eit ¼ α 0i þ α 1i GDPit þ α 2i GDP2it þ α 3i FDIit þ α 4i FDI2it þ α 5i Tit in the panel data framework. The econometric literature proposed two
þ α 6i T2it þ α 7i ECit þ α 8i EC2it þ α 9i FDit þ α 10i FD2it þ ξit ð1Þ generations of the unit-roots testing approaches. Before running the re-
gression, it should first investigate the order of integration of the vari-
ables. Hence, these tests tackle as a null hypothesis that all variables
Where i, t, α0i and ξ indicate respectively the sample, the period, the are assumed to contain a unit root against the alternative one.
specific effect, and the error term which is supposed normally distrib- The econometric literature proposed two generations of the unit-
uted. The coefficientsα1i;α2i;α3i;α4i; α5i;α6i;α7i; α8i;α9i and α10i portray roots testing approaches. The first is based on the cross-sectional inde-
the long-run elasticities of the GDP (and it's squared), FDI (and it's pendence hypothesis and includes the contributions of Maddala and
squared), T (and it's squared), EC (and it's squared), and FD (and it's Wu (1999), Choi (2001), and Hadri (2000). Whereas, various unit-
squared) with respect to the environmental proxy, respectively. It root tests have been developed, in response to the need for tests
should be noted that the inclusion of the squared of each variable to which relax the cross-sectional independence assumption and allows
control the possible existence of non-linear relationships. for cross-sectional dependence. The second generation includes the
Eq. (1) suggests that the income level (GDP), his squared (GDP2), contributions of Bai and Ng (2004), Moon and Perron (2004), Smith
foreign direct investment (FDI), his squared (FDI2), trade openness et al. (2004), and Pesaran (2007).
(T), his squared (T2), energy consumption (EC), his squared (EC2), the In this current study, we use various tests, including (i) first-
financial development (FD), and his squared (FD2) that can potentially generation tests: LLC (Levin et al. (2002)), Breitung (2001) and (ii)
determine the level of environmental degradation (e.g. Lee, 2013; second-generation tests: IPS (Im et al. (2003)), Fisher-PP, Fisher-ADF
Shahbaz et al., 2013; Tiba et al., 2015). test, Pesaran (2007), and CADF test (Cross Augmented Dickey-Fuller).
Indeed, our modeling strategy schematically is summarized as Fig. 1
portrayed below.
2.5. Panel cointegration tests

2.3. Cross-section dependency
As one of the major important questions in panel data and that
should be treated is the cross-sectional dependence question (e.g. De
Hoyos and Sarafidis (2006)). Consequently, various tests are proposed
to examine the cross-sectional dependency problem in the panel data
framework such as the Friedman (1937), Breusch and Pagan (1980),
Frees (1995), and Pesaran (2004) tests. Indeed, due to the spatial corre-
lations, spillover effects, economic distance, omitted global variables,
and common unobserved shocks, the issue of the cross-section depen-
dency should be treated. The neglecting of the cross-section depen-
dence generates biased estimates and misleading inference. For this
reason, we employ the cross-section dependency test (CD) of Pesaran
(2004). The Pesaran's test could be used in a large set of models with
small/large N and T (e.g. Phillips and Sul, 2003).
Based on the econometric theory requirements, the following step
after exploring the integration order properties of the data is to investi-
gate the existence of a long-run relationship. For this purpose, we
employed the Westerlund (2007) panel cointegration procedure.
Westerlund's cointegration test provides several properties compared
to other cointegration methodologies. First, this methodology enables
for heterogeneity in the short- and long-term cointegration dynamics
(Persyn and Westerlund, 2008). Second, this approach has the ability
to overcome the issue of cross-sectional dependence. Lastly, this ap-
proach proposes an optional bootstrap method that permits various
repetitions of the cointegration tests. Specifically, this methodology as-
sumes that the group-mean tests (Gt and Ga) which admit the alterna-
tive hypothesis with the existence of at least one long-run relationship,
even, the panel tests (Pt and Pa) assume as an alternative hypothesis
that the panel is cointegrated (Persyn and Westerlund, 2008).

3
S. Tiba and F. Belaid
2.6. Estimating the long-term relationship
Phillips and Sul (2007) have claimed that the presence of the issues
of cross-sectional dependence, heteroskedasticity, and serial correla-
tion, leads to providing misleading inference and even inconsistent esti-
mators. To overcome these issues, Pesaran (2007) has proposed the
Common Correlated Effects (CCE), which has been improved later by
Kapetanios et al. (2011) and Chudik et al. (2011). The Pesaran's
(2007) CCE estimator shows a set of properties. Indeed, the CCE estima-
tor does not include the estimation of unobserved common factors and
factor loadings. It enables for unobserved shocks to be correlated with
exogenous regressors. Besides, this estimator is still consistent even
with the presence of correlation in errors, unit-roots in the variables,
and possible cross-sectional dependence of the regressors with the un-
observed shocks (Chudik et al., 2011). For this reason, we use the Com-
mon Correlated Effects Mean Group (CCEMG) estimator of Pesaran
(2007) to determine the longterm estimators, which assume the
cross-sectional dependence issue. Furthermore, Eberhardt (2012) ad-
mitted the robustness of the CCEMG approach with a finite and an infi-
nite number of variables. Additionally, the Pesaran's (2007) estimator is
robust to non-stationary common variables (Kapetanios et al., 2011).
2.7. The Granger causality test
The following step after the cointegration issue is to detect the sense
of causality between the variables (Engle and Granger, 1987). For this
purpose, we use the Pooled Mean Group (PMG) estimator of Pesaran
et al. (1997), which assumes the combination of pooling and averaging
of coefficients. This approach enables us to avoid the issue of parameter
heterogeneity. The fundamental contribution of PMG is that it allows
the heterogeneity in short-run coefficients, the speed of adjustment to
the long-run equilibrium values, and error variances, however, the
long-term slope coefficients are assumed to be homogeneous across
countries. Besides, the PMG estimation approach proves its robustness
in the presence of outliers and the lag selection issues.
3. Empirical highlights and discussion
3.1. Cross-section dependency
The starting point of our empirical analysis is the investigation of the
possible existence of cross-section correlation issues through the use of
the Pesaran (2004) test. As illustrated in Table 1, our empirical findings
highlight the rejection of the null hypothesis of cross-sectional depen-
dence at the 1% significant level. The results confirm the absence of
Table 1
The results of cross-sectional dependence test.
Variables Test statistics
Pesaran (2004) CD-test
Test statistic
lCO2 5.658⁎
lNOx 5.981⁎
lGDP 33.715⁎
lFDI 23.987⁎
lT 26.691⁎
lEC 10.779⁎
lFD 16.607⁎
lGDP2 33.715⁎
lFDI2 27.369⁎
lT2 26.691⁎
lEC2 11.056⁎
lFD2 17.481⁎
Notes: Under the null hypothesis of cross-sectional independence, the Pesaran CD statis-
tics is distributed as a two-tailed normal standard. ⁎. ⁎⁎ are the Statistical significance at
the 1, and 5% level, respectively.
Energy Economics 92 (2020) 104966
the heterogeneity issue in our sample, supporting the nonexistence of
the cross-sectional dependency among the series.
3.2. Unit root-tests
To investigate the integration properties of the data, we employed
the first- and second-generation unit root-tests.
The highlights of the three-panel unit-roots, which we applied in
this current study, to investigate the order of integration of the series,
are recorded in Table 2. Indeed, the recorded results confirm that all
variables have a unit-root at the level rejecting the null hypothesis
of stationarity at level, which proves that all the variables are inte-
grated of order one (i.e., all the variables are stationary at the first dif-
ference I (1)).
3.3. The cointegration tests
Table 3 displays the findings of Westerlund's panel cointegration
testing for the two models (CO2 and NOx were taken as dependent var-
iables). The empirical highlights of Westerlund's test reveal that Group-
t and Panel-a that Group-t and Panel-t-test statistics are statistically sig-
nificant, and significantly reject the null hypothesis of no cointegration.
This confirms the long-run cointegration between the variables for both
models.
3.4. Long-term estimation
The regression findings of the Pesaran (2007) CCE-MG estimations
for the CO2 model are reported in Table 4. The values of the coefficients
belong to the regressors could be assumed as short-run elasticity. At the
1% and 5% level of significance, the majority of the coefficients are statis-
tically significant. From Table 4, the estimated coefficients of the CO2
model specification are 0.296, −0.145, 0.398, −0.368, 0.214, −1.576,
0.078, −0.091, 1.719 and − 0.839 for GDP, GDP2, FDI, FDI2, T, T2, FD,
FD2, EC and EC2, respectively. Then, the income factor (his squared)
has a significantly positive (negative) impact on the CO2 emissions at
a 1% level of significance. Implying the fact that an inverted U-shaped
is well obtained supporting the EKC hypothesis.3 Regarding the coeffi-
cient of the foreign direct investment inflows (FDI) where it exerts a
positive influence on the CO2 emissions level at a 5% level of signifi-
cance. Hence, the magnitude of 0.398 implies that an increase in the
FDI level leads to raising the pollution level (CO2 emissions) by around
0.4%. The increase of the CO2 emissions is due to weak environmental
regulations background in the African countries that will attract the pol-
lutants investment industries. From this point of view, African countries
have a comparative advantage in polluting industries, thus, the FDI ex-
plained the rise of the pollution level. Furthermore, the FDI squared
showed a negative impact on the CO2 emissions indicating that the ex-
istence of a negative relationship. This means that there is evidence of a
quadratic nexus between the foreign direct investment inflows and the
environmental proxy (CO2) in contradiction with the majority of studies
P value
which they supposed the linearity of such relationship. Regarding the
trade openness factor, where the magnitude of 0.214 implies that a 1%
0.0000
rise in trade openness leads to raising CO2 emissions by around
0.0000
0.0000 0.214%. This implies that an increase in the openness process generates
0.0000 an increase in pollutant emissions. Indeed, international trade with its
0.0000 negative externalities in terms of importations of the goods that con-
0.0000 sume more energy and contribute heavily to the greenhouse gas due
0.0000
0.0000
to the weak environmental regulations in the African countries. Further-
0.0000 more, the trade openness squared showed a negative impact on the CO2
0.0000 emissions indicating that the existence of a negative relationship. This
0.0000
0.0000 3
An appreciation in the income factor leads to increasing the pollution level in the ear-
lier stages of development before reaching some specified threshold where the pollution
level decline confirming an inverted U-shaped. Indeed, in the long-run, the environment
has been considered as a luxury good and greatly seeking as confirmed by the EKC theory.
4
S. Tiba and F. Belaid Energy Economics 92 (2020) 104966

Table 2
Panel unit root tests results.

Test Breitung LLC IPS Fisher-ADF Fisher-PP

Level Δ Level Δ Level Δ Level Δ Level Δ

lCO2 −0.057 −6.709⁎ −0.629 −7.587⁎ −0.958 −11.853⁎ 68.449⁎⁎⁎ 240.403⁎ 142.314⁎ 684.735⁎
(0.4773) (0.0000) (0.2645) (0.0000) (0.1690) (0.0000) (0.0892) (0.0000) (0.0000) (0.0000)
lNOx −2.345⁎ −11.732⁎ 2.2981 −11.451⁎ 4.055 (1.0000) −10.147⁎ 18.458 202.553⁎ 18.2976 375.463⁎
(0.0095) (0.0000) (0.9892) (0.0000) (0.0000) (1.0000) (0.0000) (1.0000) (0.0000)
lGDP 3.042 (0.9988) −2.869⁎ −4.966⁎ −65.897⁎ −1.650⁎ −5.249⁎ 286.541⁎ 410.218⁎ 65.0259 251.512⁎
(0.0021) (0.0000) (0.0000) (0.0.0494) (0.0000) (0.0000) (0.0000) (0.1447) (0.0000)
lFDI −3.816⁎ −11.670⁎ −9.711⁎ −15.453⁎ −6.061⁎ −18.671⁎ 163.843⁎ 385.919⁎ 200.450⁎ 1650.48⁎
(0.0001) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000)
lT −1.059 −5.967⁎ −0.444 −11.825⁎ 1.293 (0.9021) −11.691⁎ 39.908 239.792 38.228 438.497
(0.1447) (0.0000) (0.3282) (0.0000) (0.0000) (0.9237) (0.0000) (0.9486) (0.0000)
lEC 0.992 (0.8395) −1.148⁎ −6.972⁎ −38.977⁎ −5.345⁎ −17.121⁎ 414.565 688.074 90.457 466.781
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0014) (0.0000)
lFD 2.693 (0.9965) −2.850 −2.933⁎ −10.326⁎ 0.030 (0.5122) −8.907⁎ 67.712⁎⁎⁎ 185.701⁎ 43.526 293.777⁎
(0.0022) (0.0017) (0.0000) (0.0000) (0.0994) (0.0000) (0.8452) (0.0000)
lGDP2 2.661 (0.9961) −3.088⁎ −4.966⁎ −55.119⁎ −1.650⁎⁎ −16.754⁎ 286.541⁎ 388.566⁎ 65.025 275.334⁎
(0.0010) (0.0000) (0.0000) (0.0494) (0.0000) (0.0000) (0.0000) (0.1447) (0.0000)
LFDI2 −11.881⁎ −9.009⁎ −3.263⁎ −11.053⁎ −7.052⁎ −15.607⁎ 364.341⁎ 299.482⁎ 431.097⁎ 2145.84⁎
(0.0000) (0.0000) (0.0005) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000)
LT2 0.461 (0.6780) −3.051⁎ −1.252 −10.325⁎ −1.211 −9.310⁎ 68.726⁎⁎⁎ 189.874⁎ 77.411⁎⁎ 455.019⁎
(0.0011) (0.1052) (0.0000) (0.1129) (0.0000) (0.0856) (0.0000) (0.0200) (0.0000)
LEC2 1.032 (0.8491) −3.044⁎ −35.082⁎ −29.347⁎ −11.002⁎ −13.872⁎ 458.946⁎ 189.366⁎ 114.996⁎ 382.109⁎
(0.0079) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000)
LFD2 2.281 (0.9887) −5.076⁎ −6.763⁎ −9.693⁎ −2.342⁎ −8.461⁎ 120.787⁎ 171.453⁎ 63.165 350.617⁎
(0.0000) (0.0000) (0.0000) (0.0096) (0.0000) (0.0000) (0.0000) (0.1841) (0.0000)

Note: Δ portrays the first difference term. ⁎, ⁎⁎, ⁎⁎⁎ are the Statistical significance at the 1, 5 and 10% level, respectively (P-values are presented in parentheses).

Table 3
Werterland cointegration test highlights.

Dependent variable: CO2 Dependent variable: Nox

Statistic Value Z-value P-value Statistic Value Z-value P-value

Gt −5.897⁎ −20.197 0.000 Gt −3.117⁎ −2.567 0.005

Ga −37.118⁎ −19.317 0.000 Ga −32.963⁎ −11.339 0.000
Pt −20.309⁎ −9.774 0.000 Pt −14.395⁎ −1.910 0.028
Pa −14.857 ⁎ −5.862 0.000 Pa −17.458⁎ −3.830 0.000

Notes: ⁎ indicates the test statistics are significant at 1% level. Following Westerlund (2007) and Persyn and Westerlund (2008), the maximum lag length is selected
according to 4(T/100)2/9.

means that there is evidence of a quadratic nexus between the trade
openness and the environmental proxy (CO2) in contradiction with
the majority of studies in which they supposed the linearity of such a re-
lationship. Specifically, the imports of goods that seek more energy con-
sumption exert heavy pressure on environmental quality. Indeed, the
pressure on the environmental quality caused by such goods justified
the additional demand for energy consumption (e.g. cars' fuel, electric-
ity, and coal) leads to increasing the pollution level, and, therefore, the
pressure on the environmental quality. Moreover, the magnitude of
0.078 related to FD implies that a 1% rise in financial development
leads to an increase in CO2 emissions approximately by 0.08%. This im-
plies that an increase in the financial development level generates an in-
crease in the pollution level and the pressure on environmental quality.
This finding is justified by the increase of the total credit to the private
sector, which generates an increase in the demand for energy consump-
tion, and thus the emissions level improves. Moreover, the additional
volume of credits generates additional demand for luxury goods that
seek more energy use (e.g. cars, sophisticated technologies, etc.), and
thus the increase of the environmental pressures. Besides, the FD
squared recorded a negative effect on the CO2 emissions indicating
that the existence of a negative relationship. This means that there is ev-
idence of a quadratic nexus between the financial development and the
environmental proxy (CO2) in contradiction with the majority of studies
in which they supposed the linearity of such a relationship. Regarding
the energy use aspect, where the magnitude of 1.719 means that a 1%
rise in energy consumption leads to raising CO2 emissions by around
1.72%. This implies that a rise in the pollutions level is justified by the in-
crease in energy consumption. Due to the great consumption of energy
by the industrial activity that exerts heavy pressure on the environment.
Also, the EC squared revealed a negative effect on the CO2 emissions in-
dicating that the existence of a negative relationship. This means that
there is evidence of a quadratic nexus between the energy consumption
and the environmental proxy (CO2) in contradiction with the majority
of studies in which they supposed the linearity of such a relationship.
Therefore the Environmental Kuznets Curve hypothesis is well verified
for the CO2 emissions, however, the positive impact of foreign direct in-
vestments and trade openness offers a snapshot that the African coun-
tries have polluting industries with a heavy share of greenhouse gas
emissions (e.g. Grossman and Krueger, 1995).
The Pesaran (2007) CCE-MG estimated coefficients belong to the
NOx model, displayed in Table 5, are assumed as short-run elasticity.
The income factor (his squared) has a significantly positive (negative)
impact on the NOx emissions at a 1% level of significance, implying
that an inverted U-shaped is well obtained, supporting the EKC
hypothesis4 for the NOx. Regarding the coefficient of the foreign direct
4
The increase of the income factor leads to increasing the pollution level in the earlier
stages of development before reaching some specified threshold where the pollution level
decline confirming an inverted U-shaped. Indeed, in the long-run, the environment was
considered as a luxury good and greatly seeking as confirmed by the EKC theory.

5
S. Tiba and F. Belaid Energy Economics 92 (2020) 104966

Table 4 Table 5
Results of the CCE-MG estimator. Results of the CCE-MG estimator.

The dependent variable is CO2 The dependent variable is NOx

Variables Coef. P-value Variables Coef. P-value

GDP 0.296⁎ (0.0005) GDP 0.606⁎ (0.0004)

GDP2 −0.145⁎ (0.0008) GDP2 −0.254⁎ (0.0020)
FDI 0.398⁎⁎ (0.0175) FDI 0.013⁎⁎⁎ (0.0961)
FDI2 −0.368⁎ (0.0049) FDI2 −0.025⁎⁎ (0.0490)
T 0.214⁎ (0.0000) T 0.232⁎ (0.0022)
T2 −1.576⁎ (0.0090) T2 −0.476⁎⁎ (0.0171)
FD 0.078⁎ (0.0000) FD 0.025⁎⁎⁎ (0.0920)
FD2 −0.091⁎⁎ (0.0201) FD2 −0.007⁎⁎⁎ (0.0840)
EC 1.719⁎ (0.0000) EC 0.194⁎ (0.0000)
EC2 −0.839⁎⁎ (0.0300) EC2 −0.200⁎⁎ (0.0170)
Wald chi2 (10) 11.22 Wald chi2 (10) 13.56
Prob > chi 2 0.0109 Prob > chi 2 0.0187

Note: Root Mean Squared Error (sigma): 0.0483 and ⁎, ⁎⁎, and ⁎⁎⁎indicate statistical signif- Note: Root Mean Squared Error (sigma): 0.0757 and ⁎, ⁎⁎, and ⁎⁎⁎indicate statistical signif-
icance at the 1%, 5%, and 10% level, respectively. icance at the 1%, 5%, and 10% level, respectively.

investment inflows (FDI) where it exerts a positive influence on the NOx
emissions level at a 5% level of significance. Hence, the magnitude of
0.013 implies that an increase in the FDI level leads to raising the pollu-
tion level (NOx emissions) by around 0.013%. The increase of the NOx
emissions due to the African countries characterized by weak environ-
mental regulations background will attract the pollutants investments
industries. From this perspective, African countries have a comparative
advantage in polluting industries, thus, the FDI explained the rise of the
pollution level. Furthermore, the FDI squared showed a negative impact
on NOx emissions, indicating that the existence of a negative relation-
ship. This means that there is evidence of a quadratic nexus between
the foreign direct investment inflows and the environmental proxy
(NOx) in contradiction with the majority of studies which they sup-
posed the linearity of such relationship. Regarding the openness factor,
where the magnitude of 0.232 implies that a 1% rise in trade openness
leads to raising NOx emissions by around 0.23%. This implies that inter-
national trade through foreign imported goods contributes heavily to
greenhouse gas due to the weak environmental regulations in African
countries. Furthermore, the square of trade openness showed a signifi-
cant negative impact on the NOx emissions, supporting a quadratic
nexus between the trade openness and the environmental proxy
(NOx). Moreover, the magnitude of 0.025 related to FD implies that a
1% rise in financial development leads to an increase in NOx emissions
approximately by 0.025%. This implies that an increase in the total credit
to the private sector5 generates an increase in the demand for energy
consumption and, thus, the raising of the emissions level. Besides, the
FD squared recorded a significant negative effect on the NOx emissions,
confirming the existence of a quadratic relationship between financial
development and the environmental proxy (NOx). Also, the magnitude
of 0.194 means that a 1% increase in the energy demand, leads to an in-
crease in the NOx emissions by 0.194%. The squared of energy consump-
tion has a significant negative effect on NOx emissions, indicating that
the existence of quadratic nexus between energy consumption and
the environmental proxy (NOx).
Therefore the Environmental Kuznets Curve hypothesis is well veri-
fied for the NOx emissions, however, the positive impact of foreign di-
rect investments and trade openness offers a snapshot that the African
countries have a comparative advantage in polluting industries with a
heavy share of greenhouse gas emissions (e.g. Grossman and Krueger,
1995). It implies that a rise in foreign direct investments and trade
openness will enhance the pressure of pollution due to a comparative
advantage in polluting industries under weaker environmental regula-
tions (e.g. Jayanthakumaran et al., 2012). These findings are in accor-
dance with the highlights of Tiba et al. (2015).
5
The additional volume of credits generates additional demand for luxury goods that
seek more energy use and thus the increase of the environmental pressures.
3.5. Short-run and long-run causality analysis
The findings of the Granger short- and long-term causality test
are recorded in Table 6. Our findings are interpreted essentially for
the relationships between CO2/NOx and foreign direct investment
and trade openness. In terms of long-term causality, for both
models, the ECT's coefficients are negative and statistically signif-
icant. This implies that there is a bidirectional long-term causality
between CO2/NOx emissions, GDP, trade openness, and foreign di-
rect investment. These facts are in line with the results of Tiba
et al. (2015), Amri et al. (2018), Tiba and Frikha (2019c), and
Belaïd and Zrelli (2019).
Regarding the short-run Granger causality analysis, we pointed
out unidirectional causality running from GDP to CO 2 , and from
FDI to CO 2. However, bidirectional causality nexus was detected
between trade openness and CO2. Besides, our empirical facts re-
vealed short-run bidirectional causality between GDP and NO x
and between trade openness and NO x . However, we revealed a
unidirectional short-run causality from foreign direct investment
to NO x . These results are in line with the findings of Belaïd and
Youssef (2017) and Tiba and Frikha (2018). Fig. 2 below reflects
schematically the short-run and long-run causality interactions
between the variables.
The results of causality state the importance of understanding the
controversial interaction between foreign direct investments, trade,
and environmental proxy. Indeed, the increase of the environmental
damages is due to the polluting quality of the foreign investment
coupled with the weak environmental regulations background in
these economies, therefore, these elements will attract the pollutant in-
dustries. Then, African countries have a comparative advantage in pol-
luting industries.
Also, the increase in foreign trade generates an increase in pol-
lutant emissions. Indeed, imported goods below the international
standards contribute heavily to greenhouse gas due to the weak
environmental regulations in the African countries. Additionally,
this means that the importation of goods that seek more energy
consumption exerts heavy pressure on environmental quality.
Hence, the pressure on the environmental quality caused by such
goods justified by the additional demand for energy consumption
leads to increasing the pollution level, and, therefore, the pressure
on environmental quality. Therefore, the African industrial sector
exerts great pressure on the environment through pollutant emis-
sions. In fact, because of the comparative advantage in polluting
industries conjointly with weaker ecological regulations, the ris-
ing of trade openness generates an increase in environmental
damages. From this perspective, foreign trade through its positive
externalities in terms of technology transfer, international

6
S. Tiba and F. Belaid Energy Economics 92 (2020) 104966

Table 6
Granger causality test highlights.

Dependent variable Sources of causation (independent variable) Long-run

Short-run

Model ΔCO2 ΔGDP (ΔGDP2) ΔFDI (ΔFDI2) ΔT (ΔT2) ΔFD (ΔFD2) ΔEC (ΔEC2) ECT

ΔCO2 # 0.017⁎ (0.0097) −1.182 (0.2418) 1.170⁎⁎ (0.0248) 2.201⁎(0.0378) −0.1306⁎ (0.0082) −0.053⁎⁎(0.0139)
ΔGDP (ΔGDP2) 0.207 (0.1731) # −1.206 (0.2145) 1.487 (0.1152) 2.973 (0.1755) −2.718⁎⁎ (0.0381) −0.002⁎(0.0036)
ΔFDI (ΔFDI2) −0.191⁎ (0.0062) −0.454⁎ (0.0016) # 2.092⁎ (0.0041) −0.380⁎⁎ (0.0063) −0.074⁎ (0.0013) −0.230⁎⁎ (0.0345)
ΔT (ΔT2) 0.673⁎⁎⁎(0.0639) 3.410⁎⁎ (0.0166) 2.295 (0.4347) # 2.004⁎⁎⁎ (0.0647) 1.319⁎⁎ (0.0140) −0.023⁎ (0.0092)
ΔFD (ΔFD2) 0.987⁎⁎ (0.0441) 1.572⁎⁎ (0.0115) 0.144 (0.2857) 1.120⁎⁎ (0.0293) # −0.121⁎ (0.0097) −0.721⁎⁎(0.0141)
ΔEC (ΔEC2) 0.629(0.1488) −2.948⁎⁎ (0.0388) 0.577 (0.9637) −2.080⁎⁎⁎ (0.0990) 1.488 (0.1584) # −0.0003⁎(0.0030)
Model ΔNOx ΔGDP (ΔGDP2) ΔFDI (ΔFDI2) ΔT (ΔT2) ΔFD (ΔFD2) ΔEC (ΔEC2) ECT
ΔNOx # −0.345⁎⁎ (0.0115) 0.219 (0.5989) −0.182⁎⁎⁎ (0.0946) −1.206 (0.1152) 0.168 (0.1020) −0.001⁎(0.0012)
ΔGDP (ΔGDP2) 0.248⁎⁎(0.0429) # 2.932 (0.5738) 0.597⁎⁎⁎ (0.0906) 0.592 (0.1104) 0.520⁎⁎ (0.0977) −0.0003⁎ (0.0005)
ΔFDI (ΔFDI2) 0.200⁎ (0.0038) −4.343⁎ (0.0009) # −9.763⁎ (0.0081) −0.913⁎⁎ (0.0099) 1.081⁎ (0.0088) −0.071⁎⁎ (0.0126)
ΔT (ΔT2) −0.369⁎⁎(0.0213) 0.894⁎ (0.0054) −6.252 (0.2854) # 0.886⁎⁎⁎ (0.0549) −1.179⁎⁎ (0.0486) −0.004⁎ (0.0013)
ΔFD (ΔFD2) 0.139⁎ (0.0196) 1.380⁎ (0.0050) 1.241 (0.2619) −0.506⁎⁎ (0.0413) # 3.853⁎⁎ (0.0446) 1.434 (0.5954)
ΔEC (ΔEC2) −0.060⁎⁎(0.0196) −1.834⁎⁎ (0.0320) −1.095 (0.2620) −1.022⁎⁎ (0.0414) −0.863⁎⁎⁎ (0.0504) # −1.103⁎ (0.0028)

Note: P-values are listed in parentheses and ⁎, ⁎⁎, and ⁎⁎⁎indicate statistical significance at the 1%, 5%, and 10% level, respectively.

Fig. 2. The Short-run and long-run causal interactions results.

expertise, improving innovation and R&D, and the attraction of
the foreign resources to build the required capacities (e.g. finan-
cial, technical, human). Indeed, this later will help the African
economies to enhance productivity generating additional jobs, de-
mand, and revenue. These highlights are similar to the findings of
Costantini and Liberati (2014) and Tiba et al. (2015), Tiba and
Frikha (2019a, 2019b, 2019c), and Tiba (2019a, 2019b, 2019c).
From this outlook, our survey shares the same intuition of the find-
ings of Tiba et al. (2015) where they supposed that the foreign direct in-
vestments inflows (FDI) and trade openness seem to be the driving
forces behind the environmental sustainability through the transfer of
green technologies and providing the necessary expertise and capacities
(financial and human) towards the sustainable development into the
UN millennium development challenge.
3.6. Robustness test
We perform a robustness check-in to assess the sensitivity of the re-
sults to model specification. Accordingly, ss an alternative for the
Pesaran (2007) CCE-MG model, we develop a Dynamic Ordinary Least
Squares (DOLS) model to estimate the long-run relationships for our
variables.
The results are displayed in Tables A1 and A2 in the appendix. We
note that the results of the DOLS models are consistent with the results
of the earlier analysis, and support the findings of the CCE-MG model.
4. Concluding remarks
The third millennium is characterized by the increasing conscience
about the challenging threat of climate change, precisely, with the
Kyoto protocol 1997, which this protocol includes the environment as
a relevant factor that determines the sustainability of development con-
sistent with the fifth generation of human rights. However, the growth
path exerts heavy pressure on the environment through several trans-
mission channels, which generates conflicting results and goals at
odds to environmental aims. With the launching of a large scale event
such as the agreement of Paris-2016 under the United Nations back-
ground, following the climate change agreement of Kyoto1997, each
member state of this agreement should renew his intuition, ultimate
engagement, and strong commitment for fighting the global warming
threat. Besides, we added two important relevant variables that contrib-
ute very well to the climate change phenomenon, we contribute to the
EKC theory by emphasizing on the trade openness and foreign direct in-
vestment inflows as determinants of pollution level. We analyze the sig-
nificant contribution of the Trade openness and Foreign Direct
Investment inflows as a major explication to the climate change threat,
which they are missed in most of the cases, by validating the EKC
hypothesis for foreign direct investment and trade openness.
Without any doubt, foreign direct investment inflows and trade
openness play keys roles in environmental sustainability through their
positive externalities. Even more, the EKC has been widely stressed
yet without shedding more light on the key role of the foreign

7
S. Tiba and F. Belaid Energy Economics 92 (2020) 104966

investments and openness aspects. The motivation of our study is to in- Table A2 (continued)
vestigate the role of FDI and trade openness in shaping the EKC theory. Dependent variable: LNOX
To achieve this goal, our study employed the Westerlund (2007) panel
Variable Coefficient Prob.
cointegration methodology to check the presence of long-run relation-
ships as well as we used the Cross Correlated Effects (CEE) and the Com- LT2 −9.130⁎⁎⁎ 0.0622
LT −0.393⁎ 0.0038
mon Correlated Effects Mean Group (CCE-MG) estimation procedures,
LGDP 1.102⁎⁎ 0.0407
and the short- and long-term Granger causality, for 27 African countries LGDP2 −6.809⁎⁎⁎ 0.0801
over the period from 1990 to 2013. C 8.686⁎ 0.0000
Our findings reveal bidirectional long-term causality between CO2/ R-squared 0.698
NOx emissions, GDP, trade openness, and foreign direct investment. Be- Adjusted R-squared 0.688
F-statistic 231.102
sides, in the short-run, the results recorded a unidirectional causality Prob(F-statistic) 0.0000
running from GDP to CO2, and from FDI to CO2. However, bidirectional
Note: *, **, and *** indicate statistical significance at the 1%, 5%, and 10% level, respectively.
causality nexus was detected between trade openness and CO2. Addi-
tionally, the findings portray bidirectional causality between GDP and
NOx and between trade openness and NOx, while a unidirectional causal- Appendix B. Supplementary data
ity from foreign direct investment to NOx. Our highlights pointe out the
validation of the EKC hypothesis for the CO2 and NOx emissions, hence, Supplementary data to this article can be found online at https://doi.
we recorded a quadratic relationship between the FDI, trade openness, org/10.1016/j.eneco.2020.104966.
and the environmental damage proxies. Indeed, we shed light on the im-
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