How does economic complexity influence environmental degradation? New insights from African countries

Abstract

AbstractThis paper seeks to investigate the effect of economic complexity on environmental degradation in 20 selected African countries over the period 1991–2014. The Feasible Generalized Least Square (FGLS), and Driscoll‐Kraay estimators (DK) are used to capture the objectives of the study. The results suggest that economic complexity and economic growth enhance environmental degradation. Also, natural resources rents and globalization improve environmental quality. Furthermore, the findings reject the U‐shaped relationship between economic complexity and environmental degradation. In addition, the Dumitrescu‐Hurlin panel causality test shows a bidirectional causal relation between economic complexity and environmental degradation. Taking into account the ecological deficit or ecological reserve status of country, it is shown that while the natural resource rents reduce environmental degradation in ecological reserve countries, they increase environmental degradation in ecological deficit countries. The results are robust when an alternative measure of economic complexity is used. Based on these findings, the paper suggests that the governments of African countries should take into account economic complexity when designing their environmental protection policies.