Achieving environmental sustainability in Africa: The role of financial institutions development on carbon emissions

Abstract

We investigate the causal impact of the development of financial institutions on environmental sustainability in Africa. Drawing on a distinctive panel data set encompassing 34 countries from 1980 to 2017, with carbon emissions serving as an indicator of environmental sustainability, we discover that enhanced development of financial institutions leads to increased carbon emissions, especially in relation to the depth of these institutions. Furthermore, our study reveals support for the environmental Kuznets curve, heterogenous slopes, and shifts over time in the finance–emissions nexus. Our results remain robust to different model specifications. The conclusions we reach indicate that the development of financial institutions and the implementation of pro-growth policies are essential for attaining environmental sustainability on the African continent.