Financial development and environmental quality: the role of economic growth among the regional economies of Sub-Saharan Africa

Abstract

The Sub-Saharan African region is considered to be the most susceptible to the effects of climate change. The region's climate is influenced by several factors, the most notable of which is increased variation in development. The conglomerate between the financial sector and environmental quality (EQ) has been a priority for policymakers and analysts. This study looked at the complex relationships between financial development (FD) and environmental quality, as well as the position of economic growth (EG), from the perceptions of the five sub-national economies, from 1980 to 2017. The study tested the EKC hypothesis across the sub-regions. We employed the panel vector autoregressive (PVAR) model in a generalized method of moment framework to investigate the topic. The PVAR result showed that (i) financial development had a negative impact on CO 2 in four geographical regions (Western, Southern, Northern, and Central). As a result, FD in these countries minimizes carbon emissions and enhances the atmosphere. (ii) Also, FD had a positive impact on carbon emissions in Western Africa. As a result, FD in these countries increases CO 2 rather than improving environmental quality. The EKC hypothesis was validated in the Western African sub-region but was rejected in Central and Eastern (u-shape relationship) African subregional economies indicating variations in growth and environmental outcomes among the sub-regional economies. The Granger causality results in the West and Central African republics was a two-way causal connection between EG and CO 2 . The results demonstrate how "EG and CO 2 " and "CO 2 and EG" are intertwined in Western and Central, while most of the relationships were unidirectional. Detailed sub-regional policy recommendations are deliberated.

Examining Finance-Growth Nexus: Empirical Evidence From the Sub-Regional Economies of Africa

“…Nonetheless of the hypothetical and empirical prominence of FDI role in EG, empirical evidence on this issue remnant incomprehensible. The study of (Xuezhou et al, 2021) shows that there is a bi-directional causal relationship FD and EG.…”

Economic Growth and Environmental Quality: Analysis of Government Expenditure and the Causal Effect

“…Many contacts to be regulated by OLS and another outmoded econometric approach were overlooked by regression projection for the intensity of the irregularity and the capacity to tighten greatly. We employ the PQR approach of Fan et al [ 76 ] which is used to assess outcomes based on present conditions that exist irrespective of everyone’s capacity or to create presumptions circulation [ 77 , 78 , 79 ]. The controlled percentile was evaluated as a situation quantified in the form: …”

Public Debt and It’s Impact on Bank Behaviour and Financial Efficiency: Ghana in Perspective

“…Furthermore, this shift has tangible implications for the cost of borrowing, credit availability, and investment decisions, reflecting the critical nexus between public debt levels and the broader economic framework's stability and growth prospects, as supported by empirical evidence from [13,14]. Ultimately, the adverse effects on bank profitability and financial system stability underscore the gravity of high public debt levels, reinforcing the need for strategic fiscal management to navigate the associated risks of financial crises and monetary policy effectiveness [12].…”

“…The hesitancy of banks to extend loans amid high public debt resonates with the theoretical implications of the lazy bank model, where banks prefer holding risk-free government bonds, overextending credit to the private sector, thus reducing the availability of credit and stifling financial innovation [46,47]. Moreover, the revelation of the negative impact on the diversity and innovation in lending products and financial inclusion reflects the literature's emphasis on the importance of financial development for economic growth and inclusivity [13,14]. The noted impediments to financial innovation and competitiveness due to rising public debt levels, such as inflationary pressures and heightened borrowing expenses, suggest critical fiscal intervention areas.…”

“…On the other hand, financial development is commonly recognized as a critical factor for economic growth and development [13][14][15]. It represents building a robust financial system that competently mobilizes savings, allocates resources, and promotes investment.…”