Impact of economic, financial, and institutional factors on CO2 emissions: Evidence from Sub-Saharan Africa economies

Abstract

Given the acceleration of economic changes in Sub-Saharan Africa economies (SSA), a better understanding of the relationship between economic growth and pollution is essential for policy makers. The purpose of this study is to investigate the impact of economic, financial and institutional developments on CO2 emissions for 25 SSA countries over the period 1996–2010. We use the reduced form modeling to control unobserved heterogeneity specific to countries and the GMM dynamic panel method to control endogeneity. We found no -evidence in our investigation for the Environmental Kuznets Curve (EKC) hypothesis. Indeed, a monotonically increasing relationship with GDP is found more appropriate for CO2 emissions. The results confirm that political stability, government effectiveness, democracy, and control of corruption influence negatively CO2 emissions. On the contrary, regulatory quality and rule of law have a positive effect on CO2 emissions. The results confirm the importance of institutional frameworks in reducing carbon dioxide emissions since institutional quality not only affects carbon dioxide emissions directly, but also indirectly via economic growth and trade openness.