The Role of Renewable Energy Consumption and Trade: Environmental Kuznets Curve Analysis for Sub-Saharan Africa Countries

Abstract

Based on the Environmental Kuznets Curve (EKC) hypothesis, this paper uses panel cointegration techniques to investigate the short- and long-run relationship between CO2 emissions, gross domestic product (GDP), renewable energy consumption and international trade for a panel of 24 sub-Saharan Africa countries over the period 1980-2010. Short-run Granger causality results reveal that there is a bidirectional causality between emissions and economic growth; bidirectional causality between emissions and real exports; unidirectional causality from real imports to emissions; and unidirectional causality runs from trade (exports or imports) to renewable energy consumption. There is an indirect short-run causality running from emissions to renewable energy and an indirect short-run causality from GDP to renewable energy. In the long-run, the error correction term is statistically significant for emissions, renewable energy consumption and trade. The long-run estimates suggest that the inverted U-shaped EKC hypothesis is not supported for these countries; exports have a positive impact on CO2 emissions, whereas imports have a negative impact on CO2 emissions. As a policy recommendation, sub-Saharan Africa countries should expand their trade exchanges particularly with developed countries and try to maximize their benefit from technology transfer occurring when importing capital goods as this may increase their renewable energy consumption and reduce CO2 emissions.