Financial Development, Carbon Financing and Carbon Emissions in Sub-Saharan Africa
##plugins.themes.EpsilonTheme.article.main##
Akunoma Onome Omena*
Ogodu Christian Freeman
Financial systems hold a dual position in that they foster economic advancement while simultaneously affecting environmental conditions, a dynamic that underscores the need to scrutinize financial development and carbon finance within the Sub-Saharan African context. This paper sets out to analyze the relationship between these two financial factors and carbon emissions in SSA, pursuing two distinct research objectives: assessing the emissions impact of financial development and determining the emissions effect of carbon financing. The investigation utilizes a panel dataset of seven SSA nations with developing capital markets, covering the years 2000 through 2023 and comprising Côte d’Ivoire, Ghana, Kenya, Mauritius, Namibia, Nigeria, and South Africa. Data originated from the World Bank Development Indicators and the IMF Financial Structure Database. Methodologically, the study applies the pooled mean group estimator based on the ARDL model, with the PCSE technique incorporated to maintain robustness despite potential cross-sectional interdependencies. Results reveal a nuanced scenario: financial depth, measured through liquidity indicators, appears to lower emissions substantially, yet both the expansion of private sector credit and the monetary value of share trading exhibit a pronounced positive association with rising carbon output. Regarding carbon financing, climate investment funds significantly affect emissions, while certified emission reduction units show no significant impact. Manufacturing value added remains the primary source of emissions in the region. The findings suggest that financial deepening can support climate sustainability if financial resources are redirected toward environmentally sustainable sectors through targeted regulations and incentives.
Afriani, R., Baining, M. E., & Lubis, P. A. (2026). The Effect of Green Investment, Eco-efficiency, and Carbon Emission Disclosure on Firm Value. Journal of Management, Accounting, General Finance And International Economic Issues, 5(3), 778–792. https://doi.org/10.55047/marginal.v5i3.2232
Aluko, O. A., & Obalade, A. A. (2020). Financial development and environmental quality in sub-Saharan Africa: Is there a technology effect? Science of The Total Environment, 747, 141515. https://doi.org/10.1016/j.scitotenv.2020.141515
Christopeit, N., & Wooldridge, J. M. (2003). Econometric Analysis of Cross Section and Panel Data. XXIII, 752 pp. MIT Press, Cambridge, Mass., 2002. Hardcover £ 37.50. Journal of Economics, 80(2), 206–209. https://doi.org/10.1007/s00712-003-0589-6
Cobb, C. W. (1928). Douglas PH Theory of production. American Economic Review, Supplement, 18(1), 139–165.
Emenekwe, C. C., Onyeneke, R. U., & Nwajiuba, C. U. (2021). Financial development and carbon emissions in Sub-Saharan Africa. Environmental Science and Pollution Research, 29(13), 19624–19641. https://doi.org/10.1007/s11356-021-17161-7
Eryigit, S. B., & Dulgeroglu, E. (2015). How to Measure the Level of Financial Development. In Advances in Finance, Accounting, and Economics (pp. 260–286). IGI Global. https://doi.org/10.4018/978-1-4666-7288-8.ch017
Gillenwater, M., & Seres, S. (2011). The Clean Development Mechanism: a review of the first international offset programme. Greenhouse Gas Measurement and Management, 1(3–4), 179–203. https://doi.org/10.1080/20430779.2011.647014
Guo, C.-Q., Wang, X., Cao, D.-D., & Hou, Y.-G. (2022). The Impact of Green Finance on Carbon Emission--Analysis Based on Mediation Effect and Spatial Effect. Frontiers in Environmental Science, 10. https://doi.org/10.3389/fenvs.2022.844988
Habiba, U., & Xinbang, C. (2022). An Investigation of the Dynamic Relationships Between Financial Development, Renewable Energy Use, and CO 2 Emissions. Sage Open, 12(4). https://doi.org/10.1177/21582440221134794
Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53–74. https://doi.org/10.1016/S0304-4076(03)00092-7
International Energy Agency. (2019). World Energy Outlook 2019. In World Energy Outlook. OECD. https://doi.org/10.1787/caf32f3b-en
Kao, C. (1999). Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics, 90(1), 1–44. https://doi.org/10.1016/s0304-4076(98)00023-2
Levin, A., Lin, C.-F., & James Chu, C.-S. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1–24. https://doi.org/10.1016/s0304-4076(01)00098-7
Odhiambo, N. M. (2020). Financial development, income inequality and carbon emissions in sub-Saharan African countries: A panel data analysis. Energy Exploration & Exploitation, 38(5), 1914–1931. https://doi.org/10.1177/0144598720941999
Parry, I. (2021). Five things to know about carbon pricing. Finance & Development, 58(003).
Pedroni, P. (2004). Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests with an Application to the PPP Hypothesis. Econometric Theory, 20(3), 597–625. https://doi.org/10.1017/S0266466604203073
Rahman, M. M., & Alam, K. (2022). CO2 Emissions in Asia–Pacific Region: Do Energy Use, Economic Growth, Financial Development, and International Trade Have Detrimental Effects? Sustainability, 14(9), 5420. https://doi.org/10.3390/su14095420
Rees, W. E. (1992). Ecological footprints and appropriated carrying capacity: what urban economics leaves out. Environment and Urbanization, 4(2), 121–130. https://doi.org/10.1177/095624789200400212
Sadorsky, P. (2010). The impact of financial development on energy consumption in emerging economies. Energy Policy, 38(5), 2528–2535. https://doi.org/10.1016/j.enpol.2009.12.048
Stocker, T. (2014). Climate change 2013: the physical science basis: Working Group I contribution to the Fifth assessment report of the Intergovernmental Panel on Climate Change. Cambridge university press.
Su, C.-W., Li, W., Umar, M., & Lobonţ, O.-R. (2022). Can green credit reduce the emissions of pollutants? Economic Analysis and Policy, 74, 205–219. https://doi.org/https://doi.org/10.1016/j.eap.2022.01.016
Tamazian, A., Chousa, J. P., & Vadlamannati, K. C. (2009). Does higher economic and financial development lead to environmental degradation: Evidence from BRIC countries. Energy Policy, 37(1), 246–253. https://doi.org/10.1016/j.enpol.2008.08.025
Tsaurai, K. (2019). The Impact of Financial Development on Carbon Emissions in Africa. International Journal of Energy Economics and Policy, 9(3), 144–153. https://doi.org/10.32479/ijeep.7073
Umar, M., & Safi, A. (2023). Do green finance and innovation matter for environmental protection? A case of OECD economies. Energy Economics, 119, 106560. https://doi.org/10.1016/j.eneco.2023.106560
UNDP. (2024). Human Development Report 2023-24. United Nations Development Programme (UNDP).
Westerlund, J. (2007). Testing for Error Correction in Panel Data*. Oxford Bulletin of Economics and Statistics, 69(6), 709–748. https://doi.org/10.1111/j.1468-0084.2007.00477.x
Xuezhou, W., Manu, E. K., & Akowuah, I. N. (2021). Financial development and environmental quality: the role of economic growth among the regional economies of Sub-Saharan Africa. Environmental Science and Pollution Research, 29(16), 23069–23093. https://doi.org/10.1007/s11356-021-17271-2
Yang, W.-J., Tan, M.-Z., Chu, S.-H., & Chen, Z. (2023). Carbon emission and financial development under the “double carbon” goal: Considering the upgrade of industrial structure. Frontiers in Environmental Science, 10. https://doi.org/10.3389/fenvs.2022.1091537
