· Web viewECONOMIC INTEGRATION, GROWTH AND THE ENVIRONMENT IN AFRICA, A STUDY OF NIGERIA Abstract Economic integration has been lauded as a way of increasing World output based on

ECONOMIC INTEGRATION, GROWTH AND THE ENVIRONMENT IN AFRICA, A STUDY OF NIGERIA

AbstractEconomic integration has been lauded as a way of increasing World output based on the economies of scale property and exchange of technology, ideas and information. Two major channels through which integration contributes to growth in the literature have been identified as trade and foreign direct investment. Recently, various integration proposals have been advanced for Africa, but the efficacy of integration on growth in Africa is far from being established. Again, since economic growth is not totally divorced from environmental conditions, we explored the contributions of trade liberalization and foreign direct investment inflows on growth in Nigeria and the implications of integration on the Nigerian environment by applying the simple ordinary least squares (OLS), cointegration and error correction mechanism using data from 1970 to 2012. Our results indicate that trade openness and FDI inflows have not made substantial contributions to growth. Rather it is only capital formation that significantly aided growth in the long run. Reason for this we attributed to lack of enabling environment such as infrastructural deficiency. On the other hand, we found that economic growth and foreign direct investment into Nigeria significantly fuelled pollution while trade is beneficial both in the short and long run. We recommend provision of infrastructure, initiation and enforcement of sound environmental policy among others to enable integration to make meaningful impact in developing countries generally.

IntroductionIntegration has created growing interdependence among economies and societies via transboundary flows of goods and services, information, technologies, ideas, capital and people (Esty and Ivanova, 2004). Globalization has been lauded as creating economic opportunities and boosting economic growth of the affected countries. This economic growth is further hypothesized to help provide the necessary financial resources needed for environmental protection as a result of the newly adopted environmental legislation which can be effectively utilized and strengthened to bring about sustainable development (Economic Integration and Environment in Southeast Asia, 1996). However, it is of great concern the impact integration can have on increasing the threats to the environment, natural resource base and human health as a result of the implied improvement in economic growth. According to Esty (1994) trade liberalization would stimulate economic growth thereby escalating environmental degradation.

Although economic integration goes beyond trade, but trade is an essential catalyst for economic growth. Trade is important for developed as well as developing countries because the developed countries source for their raw materials that are crucial to their abundant capital from developing countries while the developing countries source for their capital goods and technical know-how from these industrialized countries of the World. There is also counter argument about free trade. They posits that the derivable benefits of free trade are

laudable and they are in most cases hypothetical, effective under the conditions of full employment, full allocation of resources and free competition in the economy. For example, Singh (1985) argued that the application of free trade is limited for the developing countries since a vast segment of their productive resources are still unexploited and there is massive unemployment. A free trade regime therefore compound further their problems by weakening the domestic industries especially those with inadequate competitive powers. Nigeria’s trade policies over the years are short term in nature (fiscal yearly reviewed activities) but can be categorized under pre-SAP and post-SAP era. Generally it is aimed at securing balance of payments viability and export promotion. In the pre-SAP period, measures mostly adopted to check pressure on BOP include exchange control measures, import tariff, import licensing to effect the import substitution, industrialization policy, discriminatory custom tariff structure and, import prohibition. Trade policies during the SAP era was characterized by trade liberalization and the liberalization of the pricing system with emphasis on the use of appropriate price mechanism for foreign exchange allocation among others. The post SAP trade policies also liberalized imports by removing import licensing requirements and instead used customs tariff. The list of items under the prohibition list was drastically reduced (Analogbei, 2000).

Based on the foregoing therefore, it can be seen that Nigeria and some other African countries have attained some level of liberalization. World bank (2008) observed that in Sub-Saharan Africa, trade within the region and with the rest of the World increased from 52 percent of GDP to 72 percent, and gross private capital flows rose from 12 percent to 14 percent between 1990 and 2006. Nigeria also being a leading member of Economic Community of West African States with partial scope agreement, has achieved some stage of integration. It has also over the years attracted substantial foreign direct investment. World Bank (2008) estimates put the net FDI inflow as percentage of GDP at 4.7 in 2006 and international tourists inbound at 1010 for the same period. It also estimated the financing through international capital markets gross inflows as percentage of GDP as one percent. However, the level of economic growth has not been too impressive. It is therefore important to analyze the impact of economic integration on growth and environment and then, the impact of growth on the environment.

Literature Review

Literature abounds on the impact of economic integration on growth and the impact of

integration on the environment. According to the UNDP (2013), the South needs the North,

and increasingly the North needs the South. The world is getting more connected. Recent

years have seen a remarkable reorientation of global production, with much more destined for

international trade, which, by 2011, accounted for nearly 60% of global output. Developing

countries have played a big part: between 1980 and 2010, they increased their share of world

merchandise trade from 25% to 47% and their share of world output from 33% to 45%.

Developing regions have also been strengthening links with each other: between 1980 and

2011, South–South trade increased from less than 8% of world merchandise trade to more

than 26%. The import of the UNDP’s observation is that integration however conceived has

some beneficial impact on growth. Heywood (1995) however sounds some cautions on the

continuous growth of the global economy which he noted involves the consumption of many

environmental services that constrains the production of goods and services and therefore

may not promote sustainability.

Esty (1994) also submitted that globalization will increase the World output. However, there are prices to be paid for this expanded World output and the price to be paid is in form of deteriorating environmental conditions.

Vogel (1999) has explained that increased regional and international integration would not encourage nations, or sub-national governments to compete with one another by putting in place less stringent environmental regulations in what is termed as a “race to the bottom.” The reasons stated why there is no race to the bottom include the fact that for all but a handful of industries, the cost of compliance with stricter environmental standards have not been sufficient to force relatively rich nations or sub-national governments to choose between competitiveness and environmental protection. Secondly, while production standards clearly can and do affect corporate plant location decisions, for most countries the effects are not significant. Thirdly, just as industrial production often imposes public costs, so do protective regulations produce public benefits.

According to Vogel (1999) economic integration will not force a weakening of environmental standards, but in some cases, economic openness and capital mobility have been an impetus for nations to enact standards than they would have in the absence of increased interdependence. This they termed as “the race to the top.” The reasons adduced to this include the fact that stricter domestic regulations can create market opportunities for the production and export of pollution control equipment. Secondly, stricter environmental regulations do not affect producers equally, so it can create advantages to some and disadvantages to others. To those that enjoy the benefits, this can create great avenue for domestic producers by making it more difficult for foreign producers to sell their products. To what extent the postulates of Vogel are correct in the developing countries’ perspective in view of limited productive capacity and high consumption capability is another issue. There are some empirical literature on the Impact of economic integration on growth and on the environment a review of these studies are provided below.

Kelvin (2004) examines the extent to which economic integration has affected Mexico’s environmental degradation during the period 1985 to 2000. In his analysis, he drew from

literature on two economic theories (environmental Kuznets curve (EKC) and the pollution haven hypothesis). In other words, EKC was used to illustrate the benefits Mexico would get by joining the North American Free Trade Agreement (NAFTA) while pollution haven was evoked by the opponents of free trade agreement who argued that free trade would automatically worsen environmental conditions in developing countries by encouraging a “race to the bottom”. Kevin observed and concluded therefore that economic integration does not automatically improve or degrade the environment as suggested by the EKC. He stated further that the purported pollution havens in Mexico either did not exacerbate the environmental condition but what triggered the environmental condition was what Kym Anderson and others have observed. That is, without proper environmental policies in place, economic integration can exacerbate existing market failures such as negative externalities.

Toshiyasu, Chan and Long Von (1998) analysed the implication of regional economic integration for Cambodia’s sustainable development. Their research tries to seek answers on issue of growth with equity and poverty eradication, human resource development, agriculture and rural development, service and industrial sector development and the environment. They contented among other things that are implications of Association of Southeast Asian Nations/ASEAN Free Trade Area (ASEAN/AFTA) for Cambodian’s environment needs research and policy actions by government. The first critical issue identified is the concern for pollution and toxic waste arising from the growth in industrial output occasioned by regional integration. The second is the issue of deforestation which is currently taking place at a a high rate and, thirdly, the issue of rapid rate of urbanization with consequences in the form of traffic congestion, air pollution and waste collection. They therefore recommend the establishment of policy coherence and coordination within the Cambodian government as a success or failure factor in issues of regional integration in Cambodia.

Tosun and Knill (2009) investigated the interaction between economic integration and environmental policy by suggesting a theory-based disaggregation of the compound variable economic integration for deriving more precise expectations on its differential impact on environmental policy arrangements. Following the review of those related theoretical concepts relating to economic integration, they utilized data on environmental policy change in Turkey from 1975 to 2005 to evaluate the causal relationship between economic integration and environmental policy making in terms of sustainability. The two dependent variables examined are the changes in strictness of environmental policy measures regulating air pollution control and; actual air pollution through the emission of carbon-dioxide (CO2). One of their explanatory variables here is the economic integration and they utilized the x-centred research perspective (measuring partial effect) using correlation coefficient. They found that an increasing economic integration of the Turkish economy into global markets led to more stringent air pollution regulations.

Jorge and Julio Cesar (2000) examined critically arguments for and against issues of incompatibility between expanded foreign trade and investment and the adherence to the

environmentally sound pattern of economic development. They focussed on the effects of expanded international trade and investment as it affects natural resources base on which economic activity takes place. The other focus is on the consequences of various environment patterns and legislations among countries based on trade and investment flows. They concluded that the experience with NAFTA suggests that for future integration, trade rules alone are not adequate to ensure environmental considerations, environmental rules are also essential and where such rules are already developed, new institutions must be initiated to ensure monitoring and enforcement.

Zang and Eastin (2007) tested the theoretical postulates of the impact of international economic integration via trade and investment on environmental protection using China as a case study by using regional data spanning from 1996 to 2004 and statistical analysis. They concluded that openness to trade and foreign investment results in an overall improvement in environmental quality by encouraging superior regulatory standards and the development of environmental technology from China’s key export markets. In addition, they also found that rather than leading regions to engage in the “race to the bottom” by lowering environmental standards, increased trade and investment stimulates more stringent policy enforcement and compliance. To what extent this is correct in the African context is a debatable topic and we conduct an analysis using Nigeria as a case study.

Theoretical FrameworkJacob Viner’s (1950) custom union theory has always been the tool of theoretical exposition of the potential gains and losses of economic integration. The theory broke down these into the static or trade creation and trade diversion effects and the dynamic effects. The static effects are created due to resource allocation arising from changed in relative prices associated with changed pattern of tariffs. Dynamic effects refer to the benefits accruable due to the creation of economies of scale that can trigger investment and growth arising from efficiency and big size.

Generally, regional integration mostly lump together elements of free trade for members of the union or trade area and protectionism against non-members. Due to this reason, it has its associated benefits and costs. The extent of its benefits and costs depends of course on which of these elements predominates. However, the concept of trade creation indicates that removal of trade barriers within the free trade area can create greater trade and investment. This concept anchors on the principle of comparative advantage.

The dynamic effects creates what is known as the spillover effects arising from economies of scale from enlarged market and efficiency gains emanating from technology transfer and information gain. Others include increased inward FDI flows and the removal of trade barriers and a move away from contingent protectionism, cheaper goods and services due to economic cooperation and coordination.

Other benefits of economic integration includes but not limited to better terms of trade of members due to trade diversion, faster growth of economies, promotion of economic efficiency as a result of firm’s competition. As can be seen from the foregoing, the general impact of economic interdependence is the promotion of economic growth which includes growth in output of goods and services of members. However, economic growth surely have some impacts on the environment. These impacts are in the form of externalities which may be beneficial or detrimental.

According to Kolstad (2000), externalities occur when one person’s or firm’s actions affect that of another person or entity without permission or compensation. An enlarged output growth or openness may encourage a polluting foreign firm that took advantage of trade liberalization to relocate to a foreign market. This may create negative externalities on other firms (local firms that are victims of pollution) as illustrated using Kolstad’s two-firm (one the pollutant the other is the victim) model in which the two are closely located.

Kolstad’s production externality showed the steel firm (generator of pollution) and the laundry firm (victim of pollution) closely located. The steel firm’s production function is given as:

Where S is the quantity of steel output, e is the level of emission and z1,---,zm are the required inputs for steel production. Equation 1 shows that the quantity of steel produced depends on the level of inputs z1,---,zm. Incidentally, the same input into steel production generates emission e (in equation 2).

The laundry firm’s production function on the other hand is given as:

Where, L is the laundry output, x1, ---,xn are the input requirements by the laundry firm. Equation 3 shows that although the laundry firm utilizes inputs x1, ---,xn in its production processes, input e which is emission produced by the steel firm acts as a major input in the laundry output. Input e enters his production function without the laundry firm’s permission or compensation. It is this input that constrains the productivity of the laundry firm and also add to pollution level of the host economy. The implication of this is that as the steel firm increases its level of output, this tends to constrain the output of the laundry firm except efforts are made at internalizing the externality. Externalities therefore may encourage inefficiency by encouraging a wide divergence between the private costs/benefits and social costs/benefits. So, in any economy where strict environmental policy are not in place, economic integration may encourage polluting industries to be attracted due to lax in environmental regulations in what is termed as pollution haven hypothesis.

Methodology

The models to be estimated are hereunder stated:

Where, GDPG is the yearly GDP growth level, OPN is the degree of trade openness

measured as the ratio of trade to GDP, CFDI is the cumulative foreign direct investment,

GFCF is the gross fixed capital formation all in million Naira, CO2 is the carbon dioxide

emission (kt) from burning of fossil fuels and the manufacture of cement (includes CO2

produced during consumption of solid, liquid and gas fuels and gas flaring), µ1 ,µ2 are

respectively the error terms of the growth equation and the pollution equation.

This study employed cointegration and error correction methods to estimate the growth

equation and the pollution equation since the models are not simultaneous but recursive, so

simple OLS will produce an unbiased and consistent estimators. This study utilizes the error

correction mechanism based on Johanson cointegration approach. If variables are non-

stationary and integrated of the same order, if cointegration is confirmed, it means that

although those variables are individually non-stationary, combining them in the same

equation will bring about an equilibrium relationship in the long run even if there can be

divergence from equilibrium in the short run. That is, they are stationary since the linear

combination of these variables cancel out the stochastic trends in the individual series. The

estimation of static or long-run relationship using the Ordinary Least Squares (OLS) can be

estimated. The changes in the dependent variables are regressed on all the independent

variables as well as the one-year lagged value of the error term obtained from the static OLS.

The error correction models are hereunder stated:

Where, DGDPG is the change in GDP growth level, DOPN is the first difference of trade

openness, DCFDI is the first difference of the cumulative foreign direct investment, DGFCF

is the first difference of the gross fixed capital formation, DCO2 is the yearly change in

carbon dioxide (kt) emission from burning of fossil fuels and the manufacture of cement

(includes CO2 produced during consumption of solid, liquid and gas fuels and gas

flaring),DECM1t-1 ,DECM2t-1 are respectively the error correction terms of the growth

equation and the pollution equation. All the αs and βs are the parameters of the model to be

estimated.

The data for the models are obtained as follows. CO2 data in kt for 1970 to 2009 were

obtained from carbon dioxide information analysis centre, environmental sciences division.

OLS estimates were made to forecast for 2010 to 2012. GDP, gross capital formation, total

trade and cumulative foreign direct investment data (in million Naira) were obtained from

the central bank of Nigeria statistical bulletins 2009 and 2011. 2012 figures for GDP, gross

capital formation and total trade were obtained from the National Bureau of Statistics various

issues. Data for 2009 to 2012 were forecasted from a regression of OLS against time. Trade

openness was obtained as the ratio of trade to GDP.

Empirical Analysis and Discussion

Table one below shows the result of the Augumented Dickey-Fuller results of the variables of

the models. Testing for stationarity of each variable at levels indicate that none of the

variables is stationary at level. A test of stationarity at first difference however indicates that

each variable is indeed stationary at first difference implying that they are all integrated of

order one.

Table 1: Unit Root Test on Variables of the Model

Variables Augumented Dickey-Fuller Statistics

Macinnon critical values at 1% significance level

Remarks

LEVEL 1ST

DIFFERENCELevel 1st

Difference

CFDI 2.011623 -5.530992 -2.6196 -2.6211 I(1)

CO2 0.295776 -4.222777 -2.6196 -2.6211 I(1)

GFCF -0.120060 -4.021698 -2.6196 -2.6211 I(1)

OPN 0.085341 -5.791929 -2.6196 -2.6211 I(1)

RFDI -2.432291 -4.847008 -3.5973 3.6019 I(1)

GDPG -0.969866 -6.778779 -2.6211 -2.6227 I(1)

Having met the condition for conducting a stationarity test, we utilized the Johansen

cointegration test and the results are presented as follows in tables 2 and 3.

Table 2: Johansen Cointegration Result for the growth model

Date: 08/12/13 Time: 19:35

Sample: 1970 2012

Included observations: 40

Test assumption: Linear deterministic trend in the

data

Series: GDPG OPN CFDI GFCF

Lags interval: 1 to 1

Likelihood 5 Percent 1 Percent Hypothesized

Eigenvalue Ratio Critical Value

Critical Value

No. of CE(s)

0.812794 98.37165 47.21 54.46 None **

0.377381 31.34992 29.68 35.65 At most 1 *

0.266353 12.39709 15.41 20.04 At most 2

0.000200 0.008018 3.76 6.65 At most 3

*(**) denotes rejection of the hypothesis at 5%(1%) significance level

L.R. test indicates 2 cointegrating equation(s) at 5% significance level

The Result in table 2 indicate that there are 2 cointegrating equations. This suggests that

although each variable is not stationary at level, a linear combination of these variables in a

model cancel out the stochastic trends in the individual series and therefore are stationary and

will not produce a spurious result..

Table 3: Johansen Cointegration Result for the Pollution model

Date: 08/12/13 Time: 19:26

Sample: 1970 2012

Included observations: 40

Test assumption: Linear deterministic trend in the

data

Series: CO2 CFDI OPN GDPG

Lags interval: 1 to 1

Likelihood 5 Percent 1 Percent Hypothesized

Eigenvalue Ratio Critical Value

Critical Value

No. of CE(s)

0.650584 75.68732 47.21 54.46 None **

0.470309 33.62762 29.68 35.65 At most 1 *

0.121564 8.209148 15.41 20.04 At most 2

0.072829 3.024680 3.76 6.65 At most 3

*(**) denotes rejection of the hypothesis at 5%(1%) significance level

L.R. test indicates 2 cointegrating equation(s) at 5% significance level

Table 3 also depicts the variables of the pollution model, and the result just like the growth equation indicates that there is cointegration relationship among the variables suggesting that

although they are not integrated of order zero (non-stationary) individually, their combined use in an equation will achieve stationarity and the result so obtained will be reliable and meaningful. Based on tables 2 and 3 results, we therefore present the static model results (long run results) for the two models..

Table 4: The Result for the Static (long run) growth Model

Dependent Variable: GDPG

Method: Least Squares

Date: 08/12/13 Time: 15:42

Sample(adjusted): 1971 2012

Included observations: 42 after adjusting endpoints

Variable Coefficient

Std. Error t-Statistic Prob.

C -475484.3 681366.0 -0.697840 0.4895

OPN 1602751. 1435398. 1.116590 0.2712

CFDI -2.731107 2.967186 -0.920437 0.3632

GFCF 1.482604 0.316190 4.688966 0.0000

R-squared 0.643314 Mean dependent var 965225.3

Adjusted R-squared 0.615154 S.D. dependent var 1784875.

S.E. of regression 1107264. Akaike info criterion 30.76308

Sum squared resid 4.66E+13 Schwarz criterion 30.92857

Log likelihood -642.0246 F-statistic 22.84538

Durbin-Watson stat 2.499401 Prob(F-statistic) 0.000000

Table 4 presents the long run determinants of growth which includes trade openness, cumulative foreign direct investment, and gross fixed capital formation. The result indicates that the independent variables have been able to capture about 64 percentage of the variability in economic growth. This is a sign of a good fit. Also the joint contribution of the independent variables in explaining growth is confirmed by the significance of the F-statistic.

A serious look at the result shows that only the gross fixed capital formation that significantly explained economic growth in Nigeria. It positively contributes to economic growth in the long run. The FDI result is counter-intuitive as it is negatively related to economic growth in Nigeria. The reasons for this may not be too far from the fact that FDI positively contributes to growth in some sectors and in others, it did not contribute so that on the overall, the result may be negative as observed by Ayadi (2010). Another factor negating the impact of FDI on growth may be the contributory roles of Infrastructural decay a beneficial and management. A specific example is the poor power supply in Nigeria among others. There is a positive relationship between trade openness and economic growth on the long run for Nigeria although the relationship is not a significant one. This makes trade component of economic integration beneficial while the FDI component is unimpressive.

Table 5: The Result for the Static (long run) pollution Model

Dependent Variable: CO2


Date: 08/12/13 Time: 17:01





C 72456.35 8936.504 8.107908 0.0000

CFDI 0.077393 0.025965 2.980731 0.0050

OPN -37579.41 18516.21 -2.029541 0.0494

GDPG 0.004086 0.001719 2.376769 0.0226


Adjusted R-squared 0.455083 S.D. dependent var 19970.05

S.E. of regression 14741.59 Akaike info criterion 22.12513




Table 5 above presents the long run result of the pollution model in which carbon dioxide emission from all sources are related to the two variables of economic integration (trade openness and FDI inflows) and output growth. Our model has been able to capture about fifty percent variability in carbon dioxide emission. The joint significance of our independent variables in explaining our dependent variable is confirmed by the significant F-statistic. Our Durbin-Watson statistic result however indicates that there is the likelihood of the presence of serial correlation which may be caused by omission of an important variable in our model. This variable is the strictness of environmental regulation which is difficult to capture. I do not feel that the extent of autocorrelation has affected the result of the model.

A serious look at the results indicate that cumulative foreign direct investment, trade openness, and output growth significantly explained carbon dioxide emission in Nigeria. Trade openness is negatively related to carbon dioxide emission. A unit rise in trade openness, other things being constant can bring about 37,579.41 (kt) reduction in carbon dioxide emission in the long-run. This agrees with the findings of Radetzki (1992) and Lucas, Wheeler and Hettige (1992) who explained that inasmuch as trade makes economies wealthier, it can be categorized as beneficial to the environment, since high income economies are having high willingness to pay to protect the environment.

Expectedly however, growth in output is positively related to pollution. A million Naira increase in output level, ceteris paribus will bring about 0.004086 (kt) increase in carbon dioxide emission in the long-run. In the same vein, inflow FDI positively contributed to pollution. This indicates that imported technologies to Nigeria are “dirty”. This lend support to the reality of pollution haven hypothesis.

Table 6: The Result for the short run Model of Pollution

Dependent Variable: DCO2


Date: 08/12/13 Time: 17:07





C 947.0795 2035.516 0.465277 0.6446

DCFDI 0.014267 0.062255 0.229169 0.8201

DOPN -14329.18 16499.55 -0.868459 0.3911

DGDPG 0.001968 0.001420 1.385369 0.1747

DECM1(-1) -0.045866 0.168446 -0.272287 0.7870


Adjusted R-squared 0.002410 S.D. dependent var 11757.69





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Table 6 above shows the result of the short run model for pollution. The coefficient of determination is very low and it is implying that the dependent variables could only capture about 11 percent variability in the dependent variable in the short run. The F-statistic also points to the fact that the independent variables did not jointly explain the dependent variable (carbon emission growth) in the short run.

In the short run however, carbon emission growth, is positively related to (although insignificantly), change in the foreign direct investment inflow into Nigeria and change in output growth indicating that FDI and output growth exerts some positive pressure on pollution growth in Nigeria even though the pressures are not so significant. Growth in trade openness on the other hand has negative relationship with output growth (although not significantly) this tends to confirm the long run result which showed that trade is beneficial to the environment.

Table 7: The Result for the Short run growth Model

Dependent Variable: DGDPG


Date: 08/12/13 Time: 15:49





C 289107.5 165208.7 1.749954 0.0889

DOPN 667614.5 1214173. 0.549851 0.5859

DCFDI -23.27974 3.953475 -5.888426 0.0000

DGFCF 0.349173 0.615697 0.567118 0.5743

DECM2(-1) -0.638457 0.087295 -7.313831 0.0000


Adjusted R-squared 0.776501 S.D. dependent var 1855828.





The short run growth model indicates that only the FDI that significantly retards

growth in Nigeria. This may be due to the crowding out effects. Trade openness and gross

capital formation promotes growth in the short run although their impacts are insignificant. If

changes in the independent variables are zero and β4DECM2t-1 (or β4Δμt-1) is negative. This

means GDPGt-1 is too or low to be in equilibrium (Gujarati, 2003, 825).

Conclusion

Based on the above results, we can conclude that trade openness and gross fixed capital

formation exerts some positive impact (though insignificant influence) on growth, while

inward foreign direct investment significantly depressed growth in the short run. In the long

run however, trade openness and gross fixed capital formation influenced growth positively.

Only gross capital formation that influenced growth significantly. Cumulative foreign direct

investment has a negative, though insignificant impact on economic growth. The reason for

this negative contribution of FDI to growth may be linked with the absence of or inadequate

provision of infrastructure in the Nigerian economy.

Carbon dioxide emission (a measure of environmental pollution) is positively linked with

foreign direct investment inflow and output growth in the short run but negatively related to

trade openness. Generally, none of these variables significantly explained pollution in the

short run. In the long run, foreign direct investment inflow, output growth and trade openness

significantly explained pollution. Output growth and inward foreign direct investment flow

significantly fuelled pollution in Nigeria. The FDI result is a clear confirmation of the reality

pollution haven hypothesis in Nigeria. Trade openness however is beneficial to the

environment as revealed by the negative relationship between pollution and trade openness.

This is in agreement with the postulates that trade promotes efficiency and better use of

country’s endowment including the environment. Trade also enhances income growth which

leads to higher living standards and encourages the stronger demand for the environment.

Based on the above we can conclude that trade is beneficial to growth and the environment in

Nigeria. Foreign direct investment inflow has not been able to be harnessed in Nigeria to act

as a stimulator of growth and environmental improvement. Caution must be made on the

conclusion here as only one measure of environmental condition is considered here. The

study did not examine the issue of resource depletion.

Policy Recommendation

Based on the foregoing, we propose that African countries should critically examine the

challenges, opportunities and constraints they will face in any economic integration efforts

given the fact that many African economies may not be natural trading partners as they

largely produce, export and import similar products thus placing a limit on intra-African

regional trade.

In addition, for regional integration to be successful in African economies, governments of

these countries must make concerted efforts at creating good enabling environment that

would enable them to maximize the benefits of integration while minimizing its cost. For

instance, the provision of infrastructure is of great importance for any economic integration to

be successful. Other important ingredients include investment in education and skills,

research and development to equip its citizens to take advantage of new employment

opportunities.

African countries must intensify their natural resource-based activities so as to avoid

irreversible damage especially to their non-renewable natural resources and should manage

their renewable natural resources so that the rate of harvest must not outgrow the regenerative

capacity of those resources.

In addition, economic integration suggests that government of Developing countries must put

in place sound environmental policy taking into cognizance the integration effects on the

environment. In addition, they must adhere to strict environmental enforcement to avoid

excessive pollution discharges, indiscriminate deforestation, over exploitation of the flora,

fauna and marine resources, and ill defined property rights among others.

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