Abstract
This study addresses the question of financial development and institutional quality influence on the environmental sustainability of some 13 countries from the sub-Saharan Africa. Relying upon pooled mean group (PMG) for panel data, we provide evidence which suggest that both financial development and institutional quality are statistically significant determinants of per capita carbon dioxide emissions in the region. More specifically, we found that without healthy institutions and sound financial system sub-Saharan African countries might not avoid environmental degradation experienced by advanced nations during their early stage of economic progress. Our results also support the EKC hypothesis in the region. In addition, the paper also shows that more openness to FDI inflows is good for the environment across the SSA. These findings suggest the need for institutional and financial service reform that supports robust environmental conservation.
Highlights
Is it possible for African countries to avoid environmental damage experienced by advanced nations during their early stage of economic growth without altering their development process? Environmental and development literatures have indicated that, environmental damage is associated with an increase in economic activities and income growth, higher income will ensure better environmental quality (Grossman and Krueger, 1995, Antweiler et al, 2001 among others)
The approriate inverted U shape test results presented in this paper strengthened this hypothesis, and suggest that most works that claimed the presence of Environmental Kuznets Curve (EKC) in Africa seem to be fairly reliable
Our results showed that the effect of FDI inflows is to reduce carbon dioxide emissions, and this effect seems hardly affected by political bureaucracy
Summary
Environmental and development literatures have indicated that, environmental damage is associated with an increase in economic activities and income growth, higher income will ensure better environmental quality (Grossman and Krueger, 1995, Antweiler et al, 2001 among others). One important reason is that FD or financial intermediation can improve capital efficiency and investment in research and development (R&D) (see De Gregorio and Guidotti, 1995; Tamazian, Chousa and Vadlamannati, 2009). This can accelerate advancement in technology and positively affect energy efficiency and low pollution emissions (Tamazian and Bhaskara Rao, 2010). Sadorsky (2010) shows that FD stimulates energy demand, which may increase the carbon intensity in the production activities (Zhang, 2011)
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