Forward Integration into Global Value Chains and Pollution Haven Hypothesis in Somalia

Abstract

This study investigates whether Somalia’s forward integration into global value chains (GVCs) sets it up as a pollution haven, while controlling for the effects of gross domestic product, renewable energy, urban population and trade openness. Annual time-series data set for the period 1992-2018 is analyzed via dynamic least squares regression analysis. The empirical results show that a percentage rise in the domestic value added of Somalia’s exports causes an increase of 0.274% in CO₂ emissions. The study outcome therefore reveals that forward integration into global value chains significantly aggravates environmental pollution in the country. This is in confirmation of the study hypothesis that Somalia may be serving as a pollution haven because of the relatively lax environmental policies that permit the inflow of pollution-intensive foreign direct investments. It may also be due to the dominance of primary commodities in its exports which places it at the beginning of the GVC spectrum. A number of policy recommendations are provided.