Powering sustainable growth in West Africa: exploring the role of environmental tax, economic development, and financial development in shaping renewable energy consumption patterns.

Abstract

Over time, the economy's growth, financial development, and environmental taxes have become vital tools in countering ecological degradation and promoting clean energy. However, there needs to be a research gap in assessing these policies' collective impact on renewable energy adoption, especially in developing West African countries. This study addresses this gap by evaluating the effectiveness of these policies from 1990 to 2020, using the Generalized Method of Moments (GMM), fixed effect, and pooled Ordinary Least Squares (OLS) models. The Dumitrescu-Hurlin panel causality test reveals bidirectional causality between economic growth and renewable energy consumption, as well as between financial development and renewable energy use. Unidirectional causality is found from environmental tax to renewable energy consumption. GMM results highlight the positive influences of economic growth and environmental taxes on renewable energy consumption, while financial development negatively affects it. These outcomes are consistent with fixed effect and pooled OLS models. Sectorial heterogeneity analysis indicates better results for countries with strong institutions, advanced technology, and strict regulations. In conclusion, this study's insights can guide policies for sustainability in West Africa, leveraging economic growth, environmental taxes, and technology for effective renewable energy integration.