Does environmental quality react asymmetrically to unemployment and inflation rates? African OPEC countries' perspective.

Abstract

Environmental degradation, inflation, and unemployment are unquestionably among the current global issues. However, there has not been an in-depth investigation of how unemployment and inflation rates affect environmental quality, particularly when considering the asymmetric scenario in oil-producing countries. This gap in the literature motivated this study to investigate how the environment (proxied by CO2 emissions) reacts to asymmetric shocks in inflation and unemployment rates using the panel NARDL model methodology. This study also examines whether the environmental Phillips curve (EPC) hypothesis holds true in the context of African OPEC countries over the period 1990 to 2019. The study presents three interesting findings. First, CO2 emissions are adversely associated with unemployment and inflation rates, meaning that protecting a healthy environment would have to come at the expense of two undesirable outcomes: losing employment and a decline in purchasing power. Second, the asymmetry analysis demonstrates that both negative unemployment and positive inflation shocks have a larger effect on CO2 emissions than the opposite scenario. Finally, long-term evidence exists to support the presence of the EPC in these countries.