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Responding to the environmental effects of remittances and trade liberalization in net-importing economies: the role of renewable energy in Sub-Saharan Africa

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Abstract

Little is currently known about how policy choices that seek to bridge the gap between low production capacity and growing consumption demands in developing economies impact the environment. To address this research gap, a quantile-based model is used to examine the impact of three policy-relevant variables on carbon dioxide (CO2) emissions: international remittance inflows, trade liberalization, and renewable energy consumption. Territorial-based CO2 emissions are used to explain the environmental effects of the variables when emissions are calculated solely on the basis of domestic production capacity. To consider if trade-induced consumption demands provide a better measure for assessing the environmental effects of the variable, consumption-based CO2 emissions are used. The study focused on Sub-Saharan African countries with zero or net positive CO2 emissions from trade. The results show, among other things, that remittances and trade liberalization increase CO2 emissions irrespective of the accounting method. Trade, in particular, has a stronger effect through import-induced consumption activities. However, the effect is statistically insignificant for the lower quantile countries and statistically significant for the middle and upper quantile countries. Harnessing the potential of renewable energy to reduce CO2 emissions should thus be a priority for policymakers in net-importing developing economies if production and consumption activities are to be created in less carbon-intensive ways.

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Fig. 1

Source: Compilation of Our World in Data: https://ourworldindata.org/grapher/share-co2-embedded-in-trade

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Data availability

Data used in the study were collected from databases that grant open access and are provided in Table 1.

Software STATA 16.

Notes

  1. Trade-adjusted (Consumption-based) CO2 emissions = emissions embodied in production within a country’s territorial jurisdiction minus (–) emissions embodied in exports plus ( +) emissions embodied in imports (Peters et al. 2012).

  2. SSA economies have certain commonness which may bias analysis if not controlled. To mention a few, the region boasts of common trade terms via the African Continental Free Trade Area. In addition, the region exhibits Common Currency Area of which there are two existing regional currency unions – the West African CFA franc and the Central African CFA franc, and lastly, the region has a common strategy in combating the problem of climate change as contained in “African Union Strategy on Climate Change” www.wedocs.unep.org.

  3. Regress CO2 emissions on the explanatory variables for each cross-sectional unit, extract the residuals and sort them into NT*1 dimension.

  4. We engaged this approach because the Driscoll-Kraay technique allows for either pooling of the data (recognises homogeneity) using the ordinary least squares (OLS) approach or recognising the heterogeneities of the cross-sectional units using fixed effects. Therefore, we deployed the Hausman (1978) test to ascertain the most appropriate routine to deploy.

  5. Weighted least squares.

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Authors and Affiliations

  1. Department of Economics and Development Studies, Alex Ekwueme Federal University, Ndufu-Alike, Ebonyi State, Nigeria

    Chinazaekpere Nwani & Chimobi Philip Omoke

  2. Department of Economics and Finance, Istanbul Gelisim University, Istanbul, Turkey

    Andrew Adewale Alola

  3. Department of Economics and Development Studies, Covenant University, Ota, Ogun State, Nigeria

    Bosede Ngozi Adeleye

  4. Faculty of Economics Administrative and Social Sciences, Istanbul Gelisim University, Istanbul, Turkey

    Festus Victor Bekun

  5. Adnan Kassar School of Business, Lebanese American University, Beirut, Lebanon

    Festus Victor Bekun

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  1. Chinazaekpere Nwani
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  2. Andrew Adewale Alola
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Nwani, C., Alola, A.A., Omoke, C.P. et al. Responding to the environmental effects of remittances and trade liberalization in net-importing economies: the role of renewable energy in Sub-Saharan Africa. Econ Change Restruct 55, 2631–2661 (2022). https://doi.org/10.1007/s10644-022-09403-6

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