Co2 emissions and economic development in Africa: Evidence from a dynamic spatial panel model

Abstract

The nexus between environmental degradation and economic growth continues to generate growing interest from environmental practitioners, industrialists, and researchers. Most existing studies in Africa have investigated the relationship based on the Environmental Kuznets Curve (EKC) theory under assumptions of homogeneity and spatial independence. In contrast, we investigate the EKC theory under more realistic possibilities of country heterogeneity and spatial dependence. Accordingly, we make two contributions. First, following estimation based on a sample of 48 African countries, we perform a quadratic regression for each country to account for heterogeneity. Second, we test and control for spatial dependence using the Global Moran's I test and the Maximum Likelihood Estimator (MLE) within the Fixed and Random effects on the Spatial-Durbin-Model, respectively. We also estimate the relationship using pooled OLS, Fixed and Random effects, and the generalised methods of moments (GMM). We document three key results: (1) the EKC hypothesis holds for the entire sample of 48 countries, even though the relationship is weak, (2) the relationship is sensitive to factor heterogeneity, with the EKC holding in some countries, while it breaks in others, and (3) there exist significant direct and spillover effects in the Co2-growth nexus across countries. Our findings provide a strong case for increased technological progress in pollution abatement, more abatement intensity, and adoption of cleaner production techniques. Specifically, we urge governments, multilateral organisations, and private investors to increase investments in renewable energy development projects. Given heterogeneity effects, we call for country specific measures which speaks to the Paris agreement.