Retrospecting on resource abundance in leading oil-producing African countries: how valid is the environmental Kuznets curve (EKC) hypothesis in a sectoral composition framework?

Abstract

Policymakers and authorities in Africa are often concerned about economic growth and stability owing to the long history of socioeconomic problems that have bedeviled the continent for years. However, increasing environmental degradation challenges in recent times beckons for adequate attention considering Africa's vulnerability to climate change and environmental disasters. Thus, the current study examines the illustrious environmental Kuznets curve (EKC) hypothesis in a sectoral composition framework of fossil resources abundance among leading oil-producing African economies, including Algeria, Nigeria, Angola, and Egypt, using a combination of quantile regression (QR) approach and dynamic ordinary least square (DOLS) for data between 1995 and 2016. Based on the empirical results from the study, three main factors significantly increase environmental pollution through CO2 emissions among the countries, namely: fossil energy consumption, income levels, and the shares of the manufacturing sector in the total gross domestic product (GDP). While income growth exacerbates pollution, the negative impacts of the income square were only significant at the lower and mid quantiles of the understudied periods in the QR estimates. Thus, the EKC hypothesis was not convincingly upheld for the countries as its validity demonstrates significant quantile effects. Furthermore, the tripartite causality nexus among real income, resource rent, and share of the service sector in GDP, which is unobserved in the share of the manufacturing sector, reflect the infamous Dutch disease argument among the resource-dependent countries. Hence, to promote environmental sustainability and address resource dependency toward the actualization of SDGs (1, 8, 12, and 13), the study recommends energy portfolios diversification alongside economic diversification.