The impact of economic growth on environmental quality in Africa : the moderating role of institutional quality

Abstract

This thesis examines the impact of economic growth on environmental quality in Africa over the period from 2002 to 2023. It also investigates the moderating role of institutional quality in this relationship. The study employs the Two-Step System Generalized Method of Moments Estimators (GMM) on forty-three (43) African countries, yielding a total of 946 observations. The results show a positive relationship between economic growth (GDP) and CO2 emissions, suggesting that expanding economic activities increase environmental pressure. However, the negative relationship between economic growth (GDP²) and CO2 emissions confirms an inverted U-shaped pattern, consistent with the Environmental Kuznets Curve (EKC) hypothesis, implying that emissions begin to decline after income reaches a certain level. Additionally, institutional quality is also found to have a negative impact on CO2 emissions, indicating that improvements in governance, regulatory effectiveness, and policy enforcement contribute to environmental sustainability by reducing carbon emissions. Furthermore, the results of the interaction term between institutional quality and economic growth indicate a positive and significant effect of economic growth (GDP) on CO2 emissions, indicating that institutional quality increases the adverse effect of economic growth on environmental degradation at early development, while the interactions between institutional quality and economic growth (GDP²) show a negative and significant effect on CO2 emissions, suggesting that strong institutions can mitigate these effects by reducing the environmental impact of economic growth. This thesis contributes to the literature by providing empirical evidence of a nonlinear relationship between economic growth and environmental quality, thereby reaffirming the validity of the EKC hypothesis. It further enriches the literature by investigating the moderating role of institutional quality in the relationship between this macroeconomic variable and environmental quality. This study provides valuable insights for policymakers, regulators, and stakeholders by demonstrating how strong institutions can offset the environmental challenges associated with economic expansion.