Co2 Emissions and Economic Development in Africa: Evidence from A Dynamic Spatial Panel Model

We examine the impact of economic development on Co2 emissions using a sample of 48 African countries for the period 1996-2012. This study is born out of the realisation that despite lower contribution to Green House Gas (GHG) emissions and global warming, Africa suffers the most from climate change. We make two contributions. First, we re-examine the Environmental Kuznets Curve (EKC) hypothesis using pooled OLS, Fixed and Random effects, and GMM. Unlike existing studies that impose country homogeneity on the relationship, we perform a linear quadratic regression to account for factors heterogeneity. Second, we provide evidence-based spatial econometric considerations, something that existing studies have overlooked. We employ a Maximum Likelihood Estimator (MLE) within the Fixed and Random effects framework on the dynamic Spatial Durbin Model (SDM). The results are as follow: (1) we find evidence for the EKC hypothesis for the entire sample of 48 countries, even though the relationship is weak, (2) when we control for factor heterogeneity, we find that the impact of economic development on Co2 emissions is heterogeneous across countries. In some countries, the EKC hypothesis holds while it breaks in others. (3) there exist significant direct and spillover effects in the Co2-growth nexus across countries. Considering the heterogeneity of the EKC, we recommend that African countries’ nationally determined contributions (NDCs) should be harmonised in the interest of the Paris Agreement on climate. Also, multilateral organisations and private investors should increase their investments in renewable energy development projects to ensure compatibility between growth and environmental sustainability.