Study On The Inter-relationship Of Economic Growth,Energy Consumption And CO2 Emissions

After decades of growth collapse and stagnation in most African countries,economic growth on the continent has significantly improved.This rapid growth,as a result,leads to more interest paid to Africa and as well changes its reputation from a continent of civil wars,instability and famine to a continent of hope,business opportunities,and development.On the other hand,Africa is noted to be thriving with its demographic structure changing rapidly,hence taking advantage of this demographic change,productive sectors in the continent will require supplementary energy inputs.There is,therefore,a natural expectation that Africa is likely to significantly increase its energy consumption in short and medium terms as the economy grows,urbanization gains and population changes.Nonetheless,as a result of the growing population,urbanization cycle and increasing industrialization,the relentless rise in energy consumption on the continent is gradually worsening the ecological environment with time as a result of rising emissions.Therefore,relying on the aforementioned assertions,understanding the dynamic cause-and-effect relationships between economic growth,energy consumption and environmental pollution(CO2 emissions)with their respective constituents will help African economies in the development of appropriate environmental and economic policies.This study therefore pursues to explore the inter-relationship amid economic growth,energy consumption and environmental pollution by estimating a series of panel data models.However,panel models econometrically may suffer from issues of heterogeneity and crosssectional reliance.This study therefore eliminated the issues of heterogeneity and crosssectional dependence,inherent with panel data analysis through the application of recently developed econometric approaches such as Pooled Mean Group(PMG),Dynamic Common Correlated Effect(DCCE),and Augmented Mean Group(AMG)as main long-run estimation approaches together with Dumitrescu-Hurlin(D-H)approach as a causality test.To check for robustness of the main econometric methods,the study further used the Panel Vector Error Correction(PVEC),Generalized Method of Moments(GMM)and Common Correlated Mean Group(CCEMG)methods to perform this function.These panel econometric approaches are more robust and therefore provides better statistical inferences in the presence of cross-sectional dependence and/or heterogeneity.Notwithstanding,we divided the panel of African countries into sub-panels(oil exporters/importers,different income levels and Net importers/Net exporters of embodied carbon)in order to explore the heterogeneous behavior of study variables regarding the long-run relationships as well as causal affiliations.Our contributions of the study are therefore detailed as follows;First,in spite of economic development and the rapid spate of demographic changes in a number of African countries with consequential effects on the environment,much is less known about the determinants of CO2 emanations.Most importantly,it is noted that CO2 externality is global in nature,however,most of the studies on emissions and its determinants focus more on trends in developed and emerging economies with less attention on developing regions such as the Africa continent.Thus,relying on the EKC framework,a heterogeneous panel data model is estimated using AMG and CCEMG methods to investigate the major determinants of CO2 emissions in African economies.Further,African economies are divided in to two types: net importers of carbon(NIC)and net exporters of embodied carbon(NEC),in order to analyze the impacts of various economies with different emission levels.Estimation outcomes of the long-term coefficients based on that AMG estimator supported by the CCEMG estimation approach demonstrated that;economic growth and use of fossil fuel energy contribute substantially to environmental degradation among all panels;urbanization and trade openness reduce CO2 emissions in NEC panel while environmental degradation is increased in NIC and the aggregated panel;financial development leads to a reduction in CO2 emanations in the whole panel as well as NEC panel of African countries,but rather maturates climate deterioration in NIC panel;with the exception of NIC panel of African nations,industrialization had a substantively positive impact on CO2 emissions and overall,the EKC assumption is validated for all panels of African states.Second,the determinants of energy consumption are econometrically scrutinized in a multivariate framework using the DCCE estimator through a modified DHPD model.This section of the study as well is centered on a panel of African nations sub-grouped into three different income levels based on the World bank Country and Lending Group classification,in order to compare and analyze the impact of economic development on the determinants of energy consumption.Results from the DCCE estimation approach together with GMM estimator showed that,economic growth,oil price,urbanization,and population growth(as major determinants)together with labor and capital stock as intermittent variables have positive and palpable influence on energy consumption even though weights of contributions vary in terms of elasticities and significant levels from one country panel to the other in the long-term.Noticeably,the inclusion of labor and capital stock as control variables is of much importance since they lessen the issues of biasness and complementarities in variable omission.The significance of these variables in the long-term therefore suggests that they are very significant in terms of explaining the changes in energy use in spite of an African country being a low,lower-middle or upper-middle-income nation.Overall,the estimated DHPD model for each panel employed showed a good sign of robustness based on the F-test together with RMSE values respectively.Test results from the Dumitrescu-Hurling Granger causality test finally depicted that,though causal connexion amid urbanization-energy consumption,population growth-economic growth,energy consumption-population growth,and urbanization-population growth are homogenous across all country groups,that of economic growth-energy consumption,oil price-energy consumption and urbanizationeconomic growth nexus on the other hand correspondingly differed from one country group to the other.This variation thus gives the indication that the long-term estimated effects together with causal connections amid variables are skewed by different income levels of African economies in an attempt to conserve energy.Finally,the thesis applies the neoclassical production function in a Cobb-Douglas framework through the PMG panel ARDL approach to estimate the nexus of economic growth,energy consumption(fossil fuel),carbon emissions and oil prices in African countries.This objective focused on a sample of African economies sub-paneled into oil exporters and non-oil exporters to depict the heterogeneous features.The empirical results revealed that energy consumption(fossil fuel),carbon emissions and oil price are positively and significantly related to economic growth though the weight of elasticities respectively varies from one country group to the other.This,therefore,suggests that irrespective of an African country being an oil exporter or non-oil exporter,these variables are among the main drivers of economic growth in Africa that need to be considered in policy formulation.Examination of causal affiliations amid variables based on the PMG and PVECM causality tests further portrayed that;there exist a bidirectional causality between energy use(fossil fuel)and carbon emissions in the long and short-terms for all panels;a positive and significant unidirectional cause-and-effect relationship extends from carbon emissions to economic growth in the long-and short-terms for Non-oil exporting African countries whilst bidirectional causality only exist in the long-term for oil-exporting African nations;a bilateral causal link is evidenced between energy use(fossil fuel)and carbon emissions both in the long and short-run for all panels;another positive unidirectional causality runs from oil price to economic growth found across all panels for both long and short-terms.In the nutshell,the findings of this current study are very efficient and unswerving because,in fact,different recently developed panel econometric approaches that are robust to matters of residual cross-sectional reliance and heterogeneity are applied.Hence,relying on these established findings,further feasible policy recommendations together with future research directions are outlined for the perusals of policymakers as well as researches in the field of energy economics.