Heterogeneous analysis of energy consumption, financial development, and pollution in Africa: The relevance of regulatory quality

Abstract

The need to examine the effects of energy and financial development on pollution reduction via the channel of regulation necessitates this study. The study analyses data from 18 African nations between 1996 and 2017 using the Pooled Mean Group (PMG) approach. We employ panel data from energy use, regulatory quality, financial development, investment, trade, urbanisation, and CO2 emissions. Empirical findings show that energy use negatively but insignificantly impacts pollution over the short run while positively and significantly in the long run. For financial development, the impact is positive in the short run and negative in the long run. Most strikingly, regulatory quality exerts a negative and significant impact on pollution in both the short and long terms, while its interactive effects with energy use and financial development may significantly reduce short-run and long-run pollution. The study is original by examining the mediating role of regulatory quality in the effects of energy and financial development on pollution, with findings confirming regulatory quality as a crucial channel for enhancing the capacity of both sectors in improving Africa's environmental pollution.