Reflections on COP27: How do technological innovations and economic freedom affect environmental quality in Africa?

Abstract

Studies in literature argue that technological innovation is a crucial component that could provide an enduring solution to the effects of climate change. However, we argue in this study that technology-driven climate solutions may not be sustainable in the absence of robust economic freedom, particularly in Africa where there are manifestly weak governance indices. Hence, we investigate the interaction effects of technological innovation and economic freedom on environmental quality in Africa. By doing this, we deviate from prior studies that have considered only non-interactive regressions and offer a net effect approach which allows us to simultaneously introduce economic freedom as a modulating policy variable. We utilize panel data from the Fraser Institute and the World Bank Database for the period 2000 to 2018 for 31 African nations. Using an array of econometric techniques, our initial findings disclose a significant unconditional negative impact of technological innovation and economic freedom on the proxies of environmental quality. When both variables are interacted, the net effect suggests further negative impact. We account for potential endogeneity, and our results, yet remain consistent. We then evaluate the effect across regions and income classes. Our findings suggest that technological innovation improves environmental quality in low-middle and upper-middle income African nations, whereas the opposite is observed in low-income and Western nations. Our findings offer comprehensive and policy-relevant information to African stakeholders and international organizations, on the suitable strategies to managing environmental degradation.