The impact of clean energy development finance and financial agglomeration on carbon productivity in Africa

Abstract

The growing threats of climate change are posing severe economic and social development challenges to African economies. As a result, emission reduction path that stabilizes carbon concentrations while minimizing the risk of damage from rising climate threats has become critical. The key is to improve carbon productivity. In this regard, the study shed light on the direction and magnitude of clean energy development finance (CEDF) and financial agglomeration (FA) impact on dynamic total carbon productivity index (DTCPI). Based on panel data of 35 economies in Africa from 2005 to 2017, we employ level of development and fossil fuel intensity as threshold variables to explore the relationship between CEDF and DTCPI using panel threshold technique. Similarly, we examined FA and DTCPI nexus under level of development. The DTCPI was estimated using Parametric Malmquist Index technique. The findings indicate that, on average, DTCPI progressed over the sample period and technical efficiency is the central factor behind the improvement. Besides, a threshold effect exists between FA, CEDF, and DTCPI. Particularly, the negative effect of CEDF on carbon productivity increases at a certain level and subsequently reduces as economic development advances. Also, CEDF exhibits a significant and greater decline on carbon productivity only at high fossil intensity levels. The negative effect of FA on DTCPI contracts as economic growth increases and remains high in low income levels. The study encourages governments to scale up clean investment initiatives, guide the formation of agglomerations, and enhance innovation while pursuing sustainable growth.