The non-linear threshold effects of public investment on sustainable trade development in Africa: a panel smooth transition regression approach

Purpose This study aims to examine the non-linear effects of public investment (PUBINV) on sustainable trade development [trade-adjusted carbon emissions (TACE)] in Africa. Design/methodology/approach The study applied the panel smooth transition regression method with two regimes and the panel-corrected standard errors regression method, analyzing annual data from 1990 to 2021 for 47 African countries. Findings The study established the following findings: (1) the nexus between PUBINV and sustainable trade development is non-linear; (2) in a low regime, an increase in PUBINV induces a decrease in sustainable trade development; (3) in a high regime, an increase in PUBINV promotes sustainable trade development; (4) PUBINV decreases TACE once it reaches a certain threshold and (5) PUBINV has predictive power for sustainable trade development. These findings offer valuable insights for policymakers and propose various policies to enhance sustainable trade development in African countries. Practical implications The findings of the study suggest that in order to promote sustainable trade development, policymakers should prioritize policies that green infrastructure, research and development in economic innovation investment. One of these policies could be providing financial incentives for businesses to adopt renewable energy sources such as solar, wind and hydropower. Also, governments could negotiate trade agreements that include provisions for sustainable trade practices and green infrastructure. Originality/value The existing literature focuses on the effects of PUBINV on carbon emissions or environmental quality without specifically examining their impact on sustainable trade development, especially in the African context. To the best of our knowledge, this is the first study to specifically examine the impact of PUBINV on sustainable trade development in African countries.