Financial Development, Carbon Financing and Carbon Emissions in Sub-Saharan Africa
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.
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