Do market-induced factors stimulate environmental sustainability? A panel evidence from 25 African economies

We examine the relationships between market-induced factors and greenhouse gas (GHG) emissions. Our contribution applies three decades of data from 25 African economies to a Panel-VECM to assess periodic shifts in GHG emissions, with financial development and renewable energy consumption as the cointegrating vectors. Countries were classified according to their hydropower use relative to their industrial activities. Our empirical results indicate a long-run relationship between the cointegrating vectors, with financial development and renewable energy acting as stabilising factors in GHG emissions. The results reveal that employment in industry, foreign direct investment (FDI), fossil fuels, and industrial performance Granger-cause GHG emissions. A rise of 1 unit in fossil fuel consumption and FDI increases GHG emissions by 69% and 24%, respectively. Yet, this consequence comes from economies with high industrial output and labour supply, which use more fossil fuels in their production. Following a rigorous normative analysis, we suggest an independent sustainable energy mix to complement the workforce employed and more investments to meet the UN's sustainable development goals. These new findings and interpretations are particularly relevant for sustainable industrial growth in Africa, highlighting the importance of an advanced theoretical foundation for effective policy interventions.