The role of economic growth, financial development, globalization, renewable energy and industrialization in reducing environmental degradation in the economic community of West African States

Abstract

Since the ECOWAS region is most susceptible to climate change, factors driving climate change and policy processes are pressuring authorities in the region to take more action in the fight against climate change. In light of this, the paper investigates the role of financial development, globalization, renewable energy, economic growth, and industrialization in reducing environmental degradation in the framework of the N-shaped environmental Kuznets curve hypothesis. Second generation econometric techniques, the Driscoll-Kraay panel regression approach and panel quantile estimation techniques were developed based on a panel dataset of 10 ECOWAS countries from 1990 to 2019. From the analyses, the N-shaped EKC is validated for the ECOWAS region. Moreover, the empirical analysis suggests that lower levels of environmental degradation are associated with increased financial development and renewable energy usage. Globalization and industrialization have a deleterious impact on environmental quality. The results from the U-test estimation also reveal that the shape of the EKC is contingent on the nation under study. On the other hand, the panel quantile estimation results show that the N-shaped EKC holds for low and medium emitters but not for high emitters. Globalization and industrialization significantly promote environmental degradation in all quantiles, while renewable energy homogeneously reduces environmental degradation. Financial development was found to hinder environmental degradation in low and high emitters while having a neutral effect in medium emitters. The paper offers valuable policy directions for policymakers in the ECOWAS region based on the findings.