Finance, poverty-income inequality, energy consumption and the CO2emissions nexus in Africa

Abstract

PurposeThis study provides the critical masses (thresholds) at which the positive incidence of finance and economic growth will be dampened by the negative effects of income inequality and poverty on energy consumption in Sub-Saharan Africa for policy direction.Design/methodology/approachThe study employed the two steps systems GMM estimator for 41 countries in Africa from 2005–2020.FindingsThe study found that for finance to maintain a positive effect on energy consumption per capita, the critical thresholds for the income inequality indicators (Atkinson coefficient, Gini index and the Palma ratio) should not exceed 0.681, 0.582 and 5.991, respectively. Similarly, for economic growth (GDP per capita growth) to maintain a positive effect on energy consumption per capita, the critical thresholds for the income inequality indicators (Atkinson coefficient, Gini index and the Palma ratio) should not exceed 0.669, 0.568 and 6.110, respectively. On the poverty level in Sub-Saharan Africa, the study reports that the poverty headcount ratios (hc$144ppp2011, hc$186ppp2011 and hc$250ppp2005) should not exceed 7.342, 28.278 and 129.332, respectively for financial development to maintain a positive effect on energy consumption per capita. The study also confirms the positive nexus between access to finance (financial development) and energy consumption per capita, with the attending adverse effect on CO2emissions inescapable. The findings of this study make it evidently clear, for policy recommendation that finance is at the micro-foundation of economic growth, income inequality and poverty alleviation. However, a maximum threshold of income inequality and poverty headcount ratios as indicated in this study must be maintained to attain the full positive ramifications of financial development and economic growth on energy consumption in Sub-Saharan Africa.Originality/valueThe originality of this study is found in the computation of the threshold and net effects of poverty and income inequality in economic growth through the conditional and unconditional effects of finance.