Energy consumption, economic growth, financial development, institutional quality and carbon emissions in sub-saharan Africa

Abstract

Global warming is arguably among the most pressing problems affecting almost all countries of the world—developed or developing due to its deleterious consequences on the environment. Global warming has often been attributed to carbon emissions onto the atmosphere, which has seen an astronomical increase in the last century. Renewable energy has gain significant attention during the last decade because it has been the fastest growing energy source in the world since the late 2000s. Despite this, a significant proportion of the existing studies emphasize energy consumption more, without disaggregating the discussion in line with both renewable and non-renewable energy sources. This leaves a gap in understanding how each type energy consumption affects carbon emission. Financial development, economic growth and Institutional quality have also been the focus of a heated debate between researchers and economists because institutions have a direct and indirect effect on the relationship between them and climate change. The aim of this study was to investigate the moderating role of institutional quality on the relationship between energy consumption, economic growth, financial development and carbon emissions in Sub-Saharan Africa. The specific objectives of the study were to establish whether: the two dimension of energy consumption; renewable and non-renewable energy consumption and economic growth, financial development have an effect on carbon emissions. Additionally, the study investigated whether institutional quality moderates the relationship between renewable energy consumption, non-renewable energy consumption, economic growth, financial development and carbon emissions. The study was guided by environmental Kuznets curve, energy transition and institutional theories. The study adopted explanatory and longitudinal research designs and used panel data to establish the casual relationship among the study variables. The target population comprised 48 countries in Sub-Saharan Africa. The inclusion/exclusion criteria were based on whether the country consistently had available data from 2000 to 2023 and this led to a final sample of 552 country year observations. Data was collected from world bank database and was analyzed using both descriptive and inferential statistics. The results of the regression model were used to test the hypotheses. The study established that renewable energy consumption (β =0.0342, ρ - value <0.05) non-renewable energy consumption (β= 0.0027, ρ<0.05) economic growth (β = 0.7026, ρ -value <0.05) and financial development (β= 0.0441, ρ<0.05) had a positive and significant effect on carbon emissions with an R-square of 94.46 percent. Further, the study found that institutional quality had an antagonistic moderation on the relationship between renewable energy consumption (β =-0.0075, ρ -value <0.05) non-renewable energy consumption (β= -0.0022, ρ<0.05) economic growth (β = -0.4327, ρ -value <0.05), financial development (β= -0.0378, ρ<0.05) and carbon emissions with an R-square of 95.14 percent. Generalized method of moment results confirmed the fixed effect model results. Based on the results, the study concluded that institutional quality moderated the relationship between renewable energy consumption, non-renewable energy consumption, economic growth, financial development and carbon emissions. The findings have several implications; policymakers should prioritize strengthening institutional quality through improved governance, regulatory frameworks, and transparency. Moreover, policymakers should integrate renewable energy with institutional reforms. This includes implementing strict emission controls on fossil fuel consumption and providing financial incentives for industries to shift towards cleaner energy alternatives. Financial development must be directed towards green investments. Future research could adopt a comparative approach by analyzing the relationship between energy consumption, economic growth, financial development, and carbon emissions in SSA relative to other regions, such as Europe, Asia, and America.