The role of technological innovation in fostering environmental quality in South Africa: Fresh evidence from the novel dynamic ARDL simulations approach

Abstract

This study revisits the role technological innovation plays in fostering environmental quality in South Africa over the period 1960-2020. Unlike the previous studies, the work employs the novel dynamic autoregressive distributed lag (ARDL) simulations framework to assess the positive and negative changes in technological innovation, scale effect, technique effect, for- eign direct investment, energy consumption, urbanization, industrial growth, and trade open- ness on CO2 emissions. Second, the paper uses the Squalli &Wilson (2011)'s innovative meas- ure of trade openness to overcome the limitations associated with the conventional trade in- tensity. Third, the study uses the frequency domain causality (FDC) approach developed by Breitung & Candelon (2006) to robustly capture permanent causality for long, short, and me- dium-term associations among the variables examined. Fourth, the paper employs the second- generation econometric procedures, which take into account the multiple structural breaks considerably overlooked by previous works. For South Africa, our empirical results reveal that: (i) technological innovation contributes to lower CO2 emissions in the short- and long run; (ii) while technique effect improves environmental quality, the scale effect largely con- tributes to escalate CO2 emissions, thus confirming that the environmental Kuznets curve (EKC) hypothesis holds; (iii) urbanization, industrial value-added, foreign direct investment and energy consumption increase CO2 emissions; (iv) trade openness contributes to worsen environmental degradation in the long run; (v) scale effect, technique effect, technological innovation, energy consumption, foreign direct investment, trade openness, urbanization, and industrial growth Granger-cause CO2 emissions in the short, medium and long run showing that these variables are fundamental to determine environmental quality. In light of our em- pirical evidence, this paper suggests that South Africa's government and policymakers could consider the role of technological innovation as a clean source of technology in achieving energy security and fostering environmental quality in the country.