Manufacturing Upgrading, High-Tech Exports, and Environmental Sustainability: Trade-offs and Synergies

This paper explores the potential trade-offs or synergies between manufacturing upgrading and environmental outcomes and investigates whether export sophistication, quality of institutions, and capacity for innovation influence this relationship. The study uses a quantitative cross-country panel research design, which includes the use of pooled Ordinary Least Squares, fixed effects (FE) estimation, quantile regression, and dynamic panel (system and difference Generalized Method of Moments) estimators, to capture the effects of heterogeneity, non-linearity and persistence in the environmental outcomes. The analysis is based on a balanced panel of 43 countries in Sub-Saharan Africa that has been observed for 19 years between 2005 and 2023 (817 country-year observations) sourced from The Global Economy database, which harmonizes the indicators available from World Bank and International Monetary Fund. The findings indicate that there is no evidence of a universal Environmental Kuznets Curve within the sectors. Controlling for country and year FE, the average impacts of manufacturing upgrading on environmental sustainability are weak and statistically insignificant. Pooled quantile regressions show non-linear patterns consistent with an inverted U-shape that grow stronger towards the upper tail of the distribution of the conditional environmental performance and that are largely attributable to cross-country composition and not to dynamics within the country, but that are weak - virtually monotonic over the observed range - among environmental laggards. The moderating role of high-tech exports is small and not strong, and is not noticeable when country-specific trends and dynamic adjustments are considered. The ability to improve environmental quality through institutional quality and innovation capacity is not systematic, but rather acts as a constraint on further degradation of the environment. The environmental sustainability outcome is itself very persistent, and the lagged outcome dominates over the dynamic estimates. The findings indicate that the negative and positive implications of manufacturing upgrading are not intrinsic but rather contingent on the convergence of manufacturing structural transformation, technological capacity and institutional environment in order to achieve environmental sustainability. Policymakers should therefore not try to see manufacturing upgrading as an independent route towards improving the environment, but focus on investments that are complementary to upgrading, such as improvements in institutional quality, the diffusion of clean technologies and regulatory enforcement, to ensure that structural transformation brings real environmental benefits.