The Macroeconomic Drivers of Carbon Emissions in East Africa: Capital‐Driven Versus Trade‐Driven Globalization

Abstract

ABSTRACT East Africa has recorded strong economic growth over the past three decades alongside a steady rise in carbon emissions, raising concerns about whether the region can sustain growth without worsening environmental pressures. This study incorporates key macroeconomic drivers of carbon emissions using panel data for 9 countries from 1990 to 2023, aiming to differentiate between capital‐driven and trade‐driven globalization. Additionally, the output‐emissions nexus is re‐examined. Empirical analysis employs the panel fully modified ordinary least squares with robustness checks for heterogeneity and cross‐section independence, using panel quantile regression and fixed effects with Driscoll and Kraay standard errors. The results show, first, strong support for the pollution haven hypothesis, as FDI consistently raises emissions across specifications. Second, the environmental effect of trade is mixed and conditional. Trade appears pollutions‐increasing in simple nonlinear models (without controls) but becomes insignificant once controls are imposed. An emissions‐reducing effect emerges in specifications modeling income nonlinearity and at higher emissions quantiles. Third, the income‐emissions nexus follows a monotonic cubic form with a single inflection point, where emissions rise with income at an increasing rate initially, before beginning to decelerate at higher income levels. Finally, urbanization, financial development, and especially energy intensity are robust positive drivers of emissions. The results emphasize the need for stronger environmental governance around FDI, cleaner trade integration, and reforms that reduce energy intensity and guide urban and financial development toward a low‐carbon path. We discuss other policy recommendations based on the findings.