CHAPTER ONE

1.0 Introduction
The decades following the end of the Gulf and Cold Wars in the early 1990s, have witnessed an alarmingly
phenomenal rise in the concept of globalization which is defined to include but not limited to economic and
market integration, interconnectedness, trade liberalization as well interflow and transfer of technology
among countries of the world have resulted in economic growth, increasing the global resource demand and
environmental degradation. Economic growth is usually a basic measure and an indicator for development
level of many countries. Nonetheless, Economic growth comes with its associated issues that can potentially
generate unfavorable effects on environmental quality induced by surges in energy consumption. Globally,
countries are faced with the challenge of developing economically without necessarily harming the
environment. To achieve this noble objective of economic development without degrading the environment,
it is incumbent and imperative that environmental quality is appraised as an indispensable facet in
development stratagems (Africa Economic Outlook 2019)

The effects of globalization and institutional quality on the nexus among environmental pollution, energy
consumption and economic development have received global, regional and national attention in recent
times especially with the UN declaration for Sustainable Development Goals aimed at achieving a universal
goal to end poverty in certain developing countries and regional groupings.(Africa’s Pulse, April
2020|Volume 21)

Following from the above, this research work is an attempt to examines crucial factors associated with Sub-
Saharan Africa’s socioeconomic development including globalization and institutions on one side and its
impact on the economic growth, energy use and environmental degradation i.e. energy-environment growth
nexus (EEGN) on the other side.

1.1 Background Study:

The strong economic performance of Sub-Saharan Africa’s economies since the start of the 21st century has
been celebrated as a return to more buoyant growth and renewed convergence with advanced economies.
(World Bank Report 2018). Coupled with new discoveries of natural resources and expectations that
commodity riches will be used to take a decisive swipe at poverty, these developments gave support to the
view that sub-Saharan Africa (SSA) and for that matter, Africa in general can ‘‘claim the 21st century’’
(Gelb 2000).

Despite the recent progress in improving living standards and reducing poverty, the challenges to
policymakers in building human capital, infrastructure and institutions and overcoming the burdens of
distance and thick borders on the subcontinent remain.

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 Sub-Saharan Africa (SSA) region is made up of forty-eight (48) countries whose geographical
locations are situated in the southern part of the Sahara and is tagged as the home to the world’s biggest free
trade area, with an estimated 1.2 billion populations (about 83 percent of the population of Africa continent).
The region covers the total land area of 23,638,000 square kilometers with annual average population growth
of 2.7 percent for the period (Fiagbe, 2015).

The World Bank classifies countries into several categories based on income. Originally, there are three
categories: high-income, middle-income and low-income countries. The high-income group/countries
according to World Bank (2020), has the highest income with Gross National Income (GNI) per capita of
at least US$12,476. The upper-middle income group has per capita incomes between US$4,038 and
US$12,476. The lower-middle income nations have GNI per capita of US$1,026 to US$4,035. Finally, low-
income countries have GNI per capita of US$1,025 or less.

The SSA region consists of twenty-six (25) low-income economies, fourteen (14) lower-middle-income
economies and six (6) upper-middle-income economies whiles only one (1) country, namely, Seychelles is
classified as a high-income economy.

Contemporary environmentalist, development economists, researchers as well as policymakers have

attempted to investigate the interactions among economic growth, energy consumption and environmental
quality and the impacts other socioeconomic factors have on the nexus with the aim to considerably
contribute to the implementation of policies for supporting development. Nonetheless, the energy-
environment-growth field remains a highly controversial topic (Omri-2013).

According to Lafit et al (2018) and Cole (2016) they opined that, globalization do not only affect
economic growth, social and cultural aspects of countries together with its relevant policies but also impacts
environmental quality at both national and continental levels. To them, globalization has indisputably
stimulated global trade, investment and other economic activities in the 21st century, which possibly causes
an upturn in energy consumption and impinges environmental quality.

Globalization also enhances knowledge and technology transfers, thus promoting efficient energy use and
decreasing negative influences on the environment (Shahbaz et al., 2016b). Furthermore, globalization
facilitates economic structure transformation towards tertiary sector growth and provides consequential
benefits to the environment (Jena and Grote, 2008). Besides, globalization persuades many countries to
follow international standards and treaties concerning environmental quality (Bernauer et al., 2010).

Owing to globalization resulting in knowledge and technological transitions, developing countries, sub-
continents and regional groupings have experienced economic transformation in which industrialization
grows. Urbanization defined as a process of social and economic shifting from rural areas (where

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agricultural dominates) to urban areas (where industrial and service sectors play important roles) is also
considered being facilitated by globalization. The incremental urbanization tends to boost energy usage and
adversely affects the environment (Shahbaz et al., 2016a).

As much as sub-Saharan African region desires to develop economically, the recent economic
development, demand for energy and institutional lapses have also posed a huge development concern about
environmental pollution especially carbon emissions and land degradation arising from factors like
deforestation, heavy reliance on fossil fuel energy sources, urbanization, industrialization, fertilizers,
pesticides and poor waste management. These factors have had deadly impact on the environment including
rising temperatures, global warmings necessitating melting of ice zones causing rise in ocean levels and its
associated floods, erratic climatic conditions of acute draught and disproportionate rainfall distribution
patterns as well as phenomena such as tsunamis, typhoons and hurricanes ravaging countries globally as has
been the case in recent times..

Huisingh et al., (2015), also confirmed that the main factor responsible for climate change and global
warming is the ever-increasing global emissions engineered by human activities, for instance cutting down
trees and burning of fossil fuels. Asumadu-Sarkodie and Owusu (2016) reiterated that economic growth,
population, foreign direct investment and energy use have contributed greatly to environmental pollution.

There has also been recent interest in studying institutional quality albeit economic growth, energy
consumption and environmental sustainability. Proponents of institutional quality theorists such as Coase
(1998), Williamson (2000) and Acemoglu et al., (2001) all has maintained that economic progress is vested
on the quality of institutions that tend to managed and formulate policies to guide the development path.Few
of the studies that have attempted to explore institutional quality on the energy-environment-growth nexus
have turned to focus and skewed the research towards high-income countries or more prosperous regional
groupings to the neglect of the least developed regional groupings

For example, Menegaki & Ozturk, 2013, Sekrafi & Sghaier, 2016, Bhattacharya et al., 2017 and Arminen
& Menegaki 2019 recent work on the energy-environment-growth nexus focused on high-income
economies, emerging markets economies and other regional blocs such as the BRIC (Brazil, Russia, India,
China, South Africa), SEA (i.e South East Asia) and MENA ( Middle East North Africa).

This study is an attempt to bridge the gap n the regional blocs and focused on Sub-Saharan Africa. The
institutional variables of interest for the purposes of these research with be on the five key thematic areas
which are;

Political Stability: reflects the perceptions of the likelihood that the government will be destabilized or
overthrown by unconstitutional or violent means, as well as politically motivated violence and terrorism.

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Rule of Law: captures the perceptions of the extent to which agents trust in and adhere to the rules of society,
and precisely the quality of contract enforcement, property rights, the police, and the courts, as well as the
likelihood of crime and violence.

Regulatory Quality: reveals agents’ views on the ability of the government to formulate and implement
sound policies and regulations that permit and promote the development of the private sector.

Corruption: relates agents’ assessments of the extent to which public power is exercised for private benefit,
including both petty and grand forms of corruption, as well as “capture” of the state by elites and private
interests.

Government Effectiveness: describes various agents’ opinions on the quality of public services, the quality
of the civil service and the degree of its independence from political pressures, the quality of policy
formulation and implementation, and the credibility of the government’s commitment to such policies.

In the preceding paragraphs, an attempt has been made briefly to explain the concept of energy consumption,
economic growth and its associated impact on environment as well as the effect and role of globalization
and institutions predicating the background to this research, gives rise to a more rigorous studies to
empirically investigate the impact of globalization and institutional quality measures on the linkage among
economic growth, energy consumption and environmental quality within the context of Sub-Sahara Africa
economies

To boot, this study is an attempt to first investigate the the concept of Energy-Environment-Growth
Nexus (EEGN) in the context of Sub-Saharan Africa by examining the four fundamental hypotheses based
on granger causality which are recognized as follows;

i. No causality hypothesis, that is neither of the three variables (i.e energy consumption, economic
growth and environmental factors) granger caused each other. This phenomenon is sometimes
referred to as the Neutrality Hypothesis
ii. Unidirectional causality from energy consumption to economic growth, a concept postulating
that energy consumption has direct and positive impact on economic development and
environmental growth. That is the Growth Hypotheses
iii. There is also reverse unidirectional hypothesis which posits that, there exist a direct and positive
flow of economic growth to the energy consumption and environment. This is the Conservative
Hypothesis
iv. Finally, there comes also the directional causality principle. Which is sometimes refer to as the
Feedback hypothesis, which holds that, there exist simultaneously reverse causality relationship
among the economic growth, energy consumption and environment.

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Following from the above, the study will further expand the nexus by incorporating Globalization and
Institutions as exogenous variables of interest to assess their impact on the nexus of Energy, Environment
Growth concept by applying recent data from 1995 to 2017 in a simultaneous equation model.

1.2 Statement of Problem:

The concept of globalization has come to be touted as one of the means of increasing productivity globally
at the back of economies of scale through industrialization, exchange of information, ideas and technology.
Nonetheless, the notion of energy-environment-growth present itself to economies as a double-edged sword.
Energy has become an indispensable part of modern economy because of the critical role it plays as a factor
of production in the mix of labour and capital. Likewise, it is also one of the leading factors behind the
global warming and environmental degradations due to greenhouse house gas emissions

The effects of these climatic and environmental issues are felt globally but differently on varying scales
among economies. Most often than not, countries that are more vulnerable to these environmental and
climatic conditions are economies largely classified as developing or fragile economies for which majority
can be found in Sub-Saharan Africa.

The Sub-Saharan Africa pose a very interesting character in terms of globalization, institutional quality and
energy-environment-growth nexus. First of all, according to Oxfam report in 2020, the Sub-Saharan African
region currently has the least electricity generation capacity and experienced the most acute forms of energy
poverty in the world with over 630 million people living without reliable electricity and 790million people
are forced to rely on solid biomas to cook. The results are deprivation, pollution, environmental damage,
drudgery, and forgone economic opportunity. Compounding these challenges is Africa’s vulnerability to
climate change, which means that traditional pathways to increasing energy supply, based on the burning of
fossil fuels, will become increasingly unviable. It is also interesting to read in the same report that, the
region has an abundant energy resources, including renewable and fossil sources to meet its future demand
for energy. Overall, technical generation potential is estimated at 11,000 gigawatts

With the region accounting for 13% of global population, total global demand for energy make up between
3-4% (IEA 2014). The region in recent times has recorded surges in rural-urban migration combined with
increased commercial and industrial sector, the implications are that, these phenomena will continue to have
a towering implications for both the mode and level of energy consumption, .

The above synopses may explain why there has been recent proliferation and interest generated in the extant
literature in energy-environment-growth with added variables of interest such as urbanization, financial
development, migration, and the likes. In light of the numerous studies that sought to investigate the
relationship between economic growth, energy consumption and environmental quality in SSA, there is no

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known single study that provide an up-to-date empirical analyses of the impact of globalization and
institutions on the energy-environment-growth nexus.

This study is therefore, an attempt to investigate the energy-environment-growth nexus by examining the
effect of globalization and institutional quality within Sub-Saharan Africa

The traditional field of Energy-Environment-Growth examines the nexus among environmental pollution,
economic growth and energy consumption.

The basic energy-growth nexus examines or recognizes four hypotheses based on Granger causality between
economic growth and energy consumption. These four basic outcomes according to Menegaki 2018, (The
Economics & Econometric of the Energy-Growth Nexus). are;

a) no causality (the neutrality hypothesis)

b) unidirectional causality from energy consumption to economic growth (the growth hypothesis)
c) unidirectional causality from economic growth to energy consumption (the conservation
hypothesis)
d) bidirectional causality (the feedback hypothesis)

Similarly, studies by Sunday J and Miriam K, Adewuyi O and Awodumi B that attempts to investigate the
extant literature on the impact of economic development and environmental quality relied heavily on the
Environmental Kuznets Curve (EKC).

The EKC hypothesis was made popular by Simon Kuznets in the 1970s. Kuznets’s paper postulated an
inverted U-shaped relationship between economic development and environmental degradation, often
measured by air pollution (i.e., CO2 emissions presumably due to data availability and significance of
greenhouse & global warming effects). In summary, the EKC model reflects on how the economic cycle
influences environmental quality through three channels; scale, composition and technical effects
(Grossman and Helpman,1991, Grossman and Krueger, 1995).

Moreover, research studies on the energy-environment-growth nexus differ in their methodologies,

time period covered and geographical location as well as their findings and conclusions. More so, most of
the research studies in the field have been found to employ a less wide perspective in investigating the nexus
among economic growth, energy consumption and environmental pollution.

Studies about Energy-Environment Growth Nexus traditionally have sought to divide the extant literature
into three main groupings thus.

• the relationship between institutions and economic growth propagated by Acemoglu et al (2001),
Hall and Jones (1999), Knack and Keefer (1995), Rodrick et al (2004)

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 • relationship between institutions and environmental quality championed by Bhattacharya et al.
(2017), Cole (2017), Lopez and Mitra, (2000) and Welsch (2004.)
• economic growth and environmental hypothesis as well as energy and economic growth by
Menegaki (2001)

However, worth noting is the fact that, it has been rare for recent researches to account for many studies that
considers a broader and joint investigation into the energy-environment-growth nexus in aggregate.

The few known exceptions to this, is the work by Arminen and Menegaki (2019) for their studies on
corruption, climate, energy demand and economic development in high-income and upper-middle-income
countries. Ssali et al (2018) also investigated the nexus among environmental pollution, economic growth,
energy use and foreign direct investment in 6 selected SSA countries. In a related study by Hajko et al.,
(2018), and Menegaki and Tsani (2018), both research works acknowledged and underscored the need for
further empirical joint investigations into the subject matter of the energy-environment-growth nexus to
make the field more comprehensible for policymaking.

Notwithstanding the abundant literature and recent interest generated in the field, it is also difficult to
come by any empirical research that addresses the impact, interaction, and the importance that variables like
globalization and institution quality could play within the energy-environment-growth nexus in the context
of Sub-Saharan Africa. Noticing this gap in the literature studies on the energy-environment-growth nexus
gave prominence and basis for this research work which is an attempt to close the gap in the extant literature
by investigating the effects of globalization and institutional quality on the relationship among energy use,
economic growth and environment quality with particular attention in Sub-Sahara Africa

Furthermore, the studies by Arminen and Menegaki provided some explanation on the effects of institution
(measured by corruption) on the energy-environment-growth nexus in high-income & middle-upper income
countries (Europe & Latin America & Caribbean), no known empirical study has, for instance examine the
impact of country groupings based on their per capita income in SSA. This study intends to bridge this gap
in the literature as well.

The motivation to empirically investigate the impact of globalization and institution together on the nexus
among economic growth, energy use and environmental quality stems from the following observation:

• According to a World Bank report in 2015, SSA is projected to contribute seven (7) out of ten (10)
fastest growing economies in the world with an average growth rate of 5.6% across the sub-region.
However, as one of the fastest growing sub-regional economies in the world, SSA is battling the
effects of a steep rise in energy demand and pollution. In furtherance, increasing globalization is

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 leading to greater economic activity, production, urbanization and industrialization, which
potentially can have a negative consequence on the environment.

• This study also argues that, globalization need not have only a negative environmental impact, it
could also have positive impact through the importation of environmentally sound technologies and
implementing global compliance, hence the attempt to empirically investigate the impact of such
variable within the context of energy-environment-growth nexus in the SSA region.

• Strengthening domestic institutions and policies is directly and indirectly linked to economic growth,
and globalization. Those countries (China, Singapore, Taiwan etc.) and regional blocs (MENA,
South East Asia) that are successfully integrating with the global economy are doing so through
effective policies and strong institutions. Hence, this piece of research is an attempt to empirically
analyze the complementary and moderating roles played by institutions and globalization in the
energy-environment-growth nexus within the sub-regional bloc of SSA.
Therefore, investigating the empirical impact of institutions together with globalization on the nexus
of economic growth, energy demand and environment within the context of SSA will help as
policymakers to formulate clear cut policies to benefit from the wave of globalization through strong
institutions as well as put in mitigating measures to minimize the potential risk of environmental
degradation arising from energy consumption and economic development.

1.3 Objective of the study:

It is difficult to state a priori the effect of globalization and institutions on the energy-environment-
growth nexus, although a vast literature has been generated in the field in recent years, little consensus has
been reached. There is also an overarching need for further research in energy-environment-growth nexus
that allows for the inclusion of other relevant variables such as globalization and institutional quality to
ascertain their significance as well as to inform policy decision regarding energy efficiency, development
strategies and environmental quality.

Besides, there is lack of empirical studies to assess the impacts of these socio-political economic variables
(i.e., globalization and institutions) on energy-environment-growth nexus particularly in the context of Sub-
Saharan Africa region.

This study is therefore an attempt to investigate the impacts of globalization and institution on energy
use, CO2 emission and economic growth in Sub-Saharan Africa incorporating, industrialization, gross
capital formation and urbanization using recent data from 1995 to 2017 in a simultaneous equation model

The main objective of this study is to;

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 1. empirically investigate the impact of globalization and institutional quality measures on the
nexus among economic growth, energy consumption and environmental on within the
context of Sub-Sahara Africa economies based on income levels
2. .
3. propose and recommend from the study how SSA countries can harness the concept of
globalization and institutional quality for policies regarding energy efficiency, economic
growth and environmental quality in the sub region.

1.4 Hypothesis:
The fundamental concept of the energy-environment-growth nexus examines or recognizes four basic
hypotheses based on Granger causality test. These are;

1. no causality (neutrality hypotheses)- this school of taught postulates that, the interactions
among economic growth, energy consumption and environmental quality do exist
independently, or their interrelationship do not significantly affect one another.
2. unidirectional causality from energy consumption to economic growth and environmental
quality. The proponents of this hypothesis are of the view that, energy consumption does
directly and significantly impact economic growth and environmental quality in a
unidirectional causality, that is economic growth and environmental quality are consequent of
demand for energy being a key determinant of the factors of production. This analogy is
sometimes also referred to as the growth hypotheses.
3. Contrary to the growth hypotheses, there is a third school of taught, conservatively proposed
that, economic growth unidirectionally engineered energy consumption and not the vice versa.
This what is referred to as the Conservative Hypothesis of flow of economic growth to energy
consumption and environmental impact.
4. Finally, there is another group of studies that believes there exist simultaneous and reverse
bidirectional causality among economic growth, energy consumption and environmental
quality. This is what we called the feedback hypotheses.

This research is set up to test the following hypotheses;

 Whether there exist no/uni/bi-directional causalities for the concept of energy-environment-

growth nexus in SSA

 Whether globalization & institutional quality do/do not affect energy-environment-growth nexus
in SSA based on income levels of the countries

 Whether there exist Environmental Kuznets Curve (EKC) situations in SSA economies

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1.5 Significance of the study:
The importance of the study will be to;

• provide a new dimension and consistent estimates by introducing globalization and institutional
quality measures into the energy-environment growth nexus within the context of SSA during
the period of 1995-2017
• provide empirical results that can help to inform policymakers to formulate policies that will be
useful in terms of governing the environment for a sustainable growth and economic
development
• add to the existing literature and investigate how income distribution affects energy demand,
economic growth, and environmental quality among the economies in SSA.

1.6 Scope and Data source of the study:

To study the effects of globalization and institutional quality on the energy use, economic growth, and
environmental pollution in SSA, this research uses panel data on 42 countries for a time period of 23
years (1995-2017). The study could not cover all the 48 countries in SSA due to unavailability of
consistent data for 6 countries. Data for empirical analyses are extracted from World Development
Indicators (WDI) and World Governance Indicators (WGI), Statista datasets that are accessible online.
The data used were al from secondary data sources extracted from the above-mentioned institutions.

1.7 Organization of the study:

This study is grouped under five (5) chapters. Chapter two (2) which is next highlights the theoretical
and empirical literature review on the study. Methodology is presented in chapter three (3). Estimations,
analyses and discussion of results are captured under chapter four (4). Finally, conclusion and policy
recommendations are offered in chapter five (5)

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 CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction & conceptual background

The Energy-Environment-Growth Nexus (EEGN) is conceptually defined to include the vast
collection of empirical studies and extant literature review meant to investigate the causal relationship
among energy consumption, pollution and economic growth. As the name suggest, the core subject of
the topic is essentially represented by three main variables of interest namely energy, economic growth
and pollution and how these variables interact and influence each other. It is arguably safe for one to
conceive and concede that EEGN is an offshoot of the traditional Energy Growth Nexus (EGN),
Since the seminal work of Kraft and Kraft (1978) that sparked substantial debate and growing
interest in the so-called energy-environment-growth nexus. The subject matter of energy-environment-
growth nexus has emerged over the decades in response to development in multiple global phenomenon
arising from market, economic, scientific and climatic conditions. Prominent among such phenomena
include the World Oil Crises, Global Warming, Industrial Revolutions and Pandemics combined with
effect of increased population, unprecedented economic growth and substantial structural changes and
breakthroughs in scientific discoveries.
Following these periods are littered number of discussion papers, projects, seminar and research works
linked to the nature of energy demand, economic performance in global economies and environment.
The research studies and extant literature belong to the EEGN concept could casually be grouped into
‘global’ studies, ‘group of countries’ studies and ‘individual country’ or ‘individual sector’ studies and
relying on aggregate magnitudes and some disaggregate magnitudes.
According to one research by Inglesi-Lots (2018), ‘‘the scope for using additional variables in
the nexus modelling is vast and this allowance is supported by the lack of solid theoretical foundations
in the nexus’’. The fact that not all studies employ a common data span or common econometric methods
results in inconclusive evidence among them.
Omri (2013) and Omri & Kahouli (2014), in responding to the limitations of Granger causality
introduced the concept of simultaneous equation modelling into the energy-environment-growth nexus.
It is worth noting that, simultaneous equation modelling does not suffer from the limitation of Granger
causality as questioned by Payne in 2010. More so, it is straightforward to include new control variables
in simultaneous equation modelling to avoid omitted variable bias in Granger causality modelling.
In proceeding with this chapter, will be the summary of relevant related empirical and theoretical
literature in the field of EGN and with globalization and institutional quality as well.

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2.1 Theoretical literature review on Globalization and the energy-environment-growth
nexus
Globalization refers to the integration of different countries from economic, social and political
aspects. With the development of technology, trade freedom, international finance and multinational
operations, globalization has been changing the world rapidly and thoroughly (Garrett, 2000).

Cole (2004) and Shandra et al (2009) both studies acknowledged that, it is significant that environmental
quality should be scrutinized under the influence of globalization. To them, globalization can positively
or negatively affect the environment directly or indirectly through the economic growth transmission
channel. As a facilitator of economic benefits, globalization eliminates cross-border trade and
investment barriers, hence contributing to expand the size of a country’s economy and subsequently
leading to escalating pollution.
In a related study by Esty (2001), concluded that, after establishing a certain national income, pollution
is hypothesized to decrease because of the economic structure transition towards tertiary sector and
technology advancement with respect to production efficiency. Globalization can also directly raise
pollution via the scale effect when trade activities accrue yet trade permits access to better technology
and management knowledge which in turn ameliorates the environment.
Early proponents of the EEGN such as Grossman and Krueger (1991) analyzed the
environmental impact of North American Free Trade Agreement and witnessed the scale effect of
globalization (proxied by trade openness) on the reduction of environmental quality.
Grossman and Krueger (1995) again also commented to the effect that, political globalization has
feasible impact on environmental quality. When citizens have already attained adequate life standards,
they tend to care more about the environmental quality and might demand governments to appropriately
act to minimize or eradicate pollution; for example, promulgating environmental regulations.
Studies by Dasgupta and Mäler (1995), Panayotou (1997), Harbaugh et al. (2002), Bernauer and
Koubi (2009), Lin and Liscow (2013), You et al., (2015), all drew a similar conclusion acknowledging
that, most of the empirical research finds that more democratic political institutions are associated with
higher environmental standard requirements and quality
Moreover, Bernauer et al., (2010) and Spilker, (2012) also agreed that political globalization can
influence both environmental policies and quality in countries that are members of international
organizations
Liddle (2001), Sigman (2004), Bernauer and Kuhn (2010) also confirmed the positive causation of
globalization on environmental enhancement.
Frankel and Rose (2005) in their study of 41 developed and developing countries employed data from
1990 and concluded that, trade helped decrease pollution.

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 On the contrary, Dean (2002), Magani (2004), McAusland (2008), Shandra et al. (2009) research
studies perceived environmental destruction because of trade openness. Their conclusions were
analogous and fell in line with the findings of Shahbaz et al. (2013a) concerning the case of Indonesia.
Omri et al. (2015) studies the cointegration among energy consumption, economic growth, trade
openness, urbanization, financial development, and CO2 emission in 12 Middle East and North Africa
(MENA) countries during 1990–2011 and concludes that trade openness raised CO2 emission for the
entire panel data; nonetheless, at national level, the results were not statistically significant for 9 out of
12 countries.
Recent studies by Mrabet and Alsamara (2017) testing the EKC hypothesis utilizing energy
consumption, financial development, and trade openness in Qatar during 1991–2000 identified positive
influence of trade openness on CO2 emission in the long-run together with insignificant effect in the
short-run.
Shahbaz et al. (2017) also examined the role of globalization in China and proved that globalization help
reduced CO2 emission.
Hasanov et al. (2018) researched the link between international trade of oil exporting countries and CO2
emission. Their study explored that export and import can significantly lower CO2 emission in both
short-run and long-run.
Other more recent studies on Environmental Degradation, Energy Consumption, Economic Growth and
Globalization is summarized.

Table 1 (Selected empirical literature review on globalization, and energy-environment-

growth nexus)
Countries or Estimation Summary of main
Authors Period Areas Source Data Method(s) findings
Confirmed existence of
Semi-
World Bank EKC and statistical
1970- parametric
Liu et al (2020) G7 countries database & significance of impact of
2015 panel
Dreher, 2006 economic on CO2 emission
regression
in the G7 countries
CO2 emissions (a measure
of environmental pollution)
WDI &
Sunday & 1981- Co-integration is positively linked to
Nigeria Central Bank
Miriam (2016) 2013 & VECM previous CO2 emissions
of Nigeria
and economic growth and
negatively related to trade

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 openness (a measure of
globalization in Nigeria.
They concluded that
Developing countries like
Nigeria must put in place
sound environmental policy
to ameliorate the
integration effects on the
environment
Found that the influences of
globalization are negative
Fully Modified
WDI & but not significant for
Akadiri et al. 1970- Ordinary Least
Turkey SDGs Turkey. No statistical
(2019) 2014 Squares
indicators indication/significance that
(FMOLS)
globalization impacts
carbon emissions in Turkey
Globalization reduced
WDI &
Akadiri et al. 1970- pollutant emissions in both
China SDGs FMOLS
(2019) 2014 the short and long-runs over
indicators
the sampled period
Electricity consumption
Panel Data and economic growth
Panel
degrade environment
for 10 most Cointegration
whiles globalization
1971- WDI & &
Rahman (2019) electricity environmental quality, the
Fully Modified
2013 KOF Index existence of EKC
consuming Ordinary Least
hypotheses with both
Squares
countries bi/unidirectional causalities
(FMOLS)
among the variables of
interest in these countries.
Confirms that in the long-
run economic growth and
energy consumption
Shaheen et al 1972-
Pakistan WDI ARDL Model intensify CO2 emissions
(2018) 2014
whereas globalization in the
long-run is found to be
insignificant
Source: Author’s compilation from selected articles in Scopus

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2.2 Theoretical Literature on Institution and the energy-environment-growth nexus
Studies on the effect institutional quality on economic development have been well documented
in recent years beginning from the works of Knack and Keefer (1995), Hall and Jones (1999), Acemoglu
et al (2001) and Rodrik et al (2004). There had been also numerous separate studies carried out by
Bhattacharya et al (2017), Cole (2007), Lopez and Mitra (2000) and Welsch (2004), to investigate the
impact of institutions on environmental quality, however, it rare to account for research studies that
jointly account for the effect of institution on the energy-environment-growth nexus.
Bhattacharya et al. (2017), in an attempt to jointly investigate effect of institutions on the EEGN,
used annual data from 85 developed and developing countries across the world and found that
institutional quality (proxy by the economic freedom index) had a direct positive impact on economic
growth and a reducing effect on CO2 emissions.
Menegaki and Ozturk (2013) used two institutional variables i.e. political competition and
political stability in a sample of 26 European countries. The study concluded that, political stability
affects growth and capital, and further suggested that political stability happened to be a two-sided coin
and could favor or deter corruption.
Sekrafi and Sghaier (2016) used data from 13 MENA countries, and concluded that, increasing
corruption deters growth, increases energy consumption and decreases CO2 emissions.
In a recent study by Armenin and Menegaki (2019), using 67 high-income and upper-middle-
income countries and applying systems of simultaneous equation models to investigate the level of
corruption on pollution, economic growth and energy use, the studies confirmed the feedback hypothesis
(bidirectional causality) in conjunction with a non-existence of EKC hypothesis in the sampled
countries. This means that, in the examined countries, growth is fueled by energy and vice versa. At the
same time there is no point of inflection in the income level beyond which the sampled countries start
caring for the environment and their emission. This indicates the existence of the energy-hungry
economies that are yet to curb their pollution.
The results also indicated that, climate appears to play a more important role in energy consumption and
CO2 emissions than the level of corruption.
Other researchers have also tried to empirically investigate the relationship between institutional
qualities and the energy-environment-growth nexus either in aggregated or disaggregated studies, in
group or individual countries as well as global studies.
Dieudonne (2020), have investigated the relationship between pollution emissions and institution nexus
in 50 African by applying systems generalized method of moments estimator on a dynamic panel data
over the period of 1970-2014. The studies used political regime as one of the independent variables in
addition to the six key indicators of institutional qualities (i.e political stability, government
effectiveness, regulatory quality, rule of law, voice of accountability and level of corruption). The

15
research concluded that, a reinforcement of legislation through the improvement of institutional quality
has a negative and significant effect on pollution emissions. Moreover, the findings also validated the
EKC hypothesis in Africa

This research differs from the work of Arminen and Menegaki (2019) by virtue of including other
relevant variables of interest (i.e., globalization index, political stability, rule of law, government
effectiveness and regulatory quality). It also differs in approach with regards to sampling period and
geographical zones, however, it is important to acknowledged that, the two studies are similar in
methodological approach.
Although, this research work shares common geographical area and institutional variables, it is worth
mentioning that this new study differs it methodology by incorporating globalization index on the nexus.
It also important to note that, the work by Dieudonne in 2020 examined the effect of institutions on
pollution emissions, this work is an attempt to investigate the effects of globalization and institutions
empirically jointly on the EEGN.
Therefore, it is can be deduced that, this new research is a further and enhanced study to the above
research by Arminen and Menegaki (2019) and Dieudonne (2020).

Adewuyi A O, Awodumi O B. Environmental Pollution, Energy Resource Import, Economic Growth

and Financial Development Theoretical Exploration and Empirical Evidence from Nigeria using ARDL
annual data between 1989-2019 by applying ARDL estimation method concluded that, there exist strong
and significant feedback effects between financial development, energy resource import and economic
growth.
Table below summarizes previous empirical studies on the subject.

16
Table 2 (Selected recent empirical literature review on institutions and energy-environment-
growth nexus)
Countries
or Measure of Estimation Summary of main
Author(s) Period Areas institution Method findings
political regime,
political
Improvement of
stability,
institutional quality has a
government
Systems negative and significant
Dieudonne 50 African effectiveness,
1970-2014 GMM effect on pollution
(2020) Countries regulatory
estimators emissions and the
quality, rule of
validation of the EKC
law, voice of
hypothesis in Africa
accountability
and corruption
Feedback effect exists
Adewuyi & Financial between financial
1981-2019 Nigeria ARDL Model
Awodumi (2020) development development and energy
resource import.
Government
effectiveness modifies the
economic growth-
emissions relationship,
directly by reducing CO2
for strong effective
93
Government governance with
emerging
Wawryzniak & effectiveness and GMM diminishing increment for
1995-2014 &
Wirginia (2020) control of estimators low indicators
developing
corruption respectively.
countries

The study did not confirm

the moderating role of the
control of corruption in
shaping the economic
growth-carbon dioxide

17
 emission nexus.

The study also confirmed

the presence of U-shaped
relationship between
economic growth and
carbon dioxide emissions
postulated by the EKC.
The empirical finding
reveals that institutional
quality reduces carbon
dioxide emissions and
hence reduces the level of
Egbetokun et al. Regulatory environmental
1971-2015 Nigeria ARDL
(2019) quality degradation in the
countries that were
investigated.
The finding based on the
other control variables
reveals that an in
The result confirmed
bidirectional causal
relationship between
GDP and energy use but
68 high do not support for EKC
Arminen & and upper- Simultaneous hypothesis.

Menegaki 1985-2011 middle corruption equation They also found that

(2018) income model weather/climate
variations are more
countries important determinant of
energy consumption and
CO2 emissions than
corruption in the sampled
countries

18
 improvement of
institutional quality has a
corruption, rule
47 negative and significant
of law and Two-steps-
Ali et al. (2018) developing effect on pollution
bureaucratic systems GMM
countries emissions and the
quality
validation of the EKC
hypothesis in Africa
Countries with better
political
quality regarding voice of
stability,
accountability, political
government GMM
167 stability, government
Wen-Lin (2017) 2000-2013 effectiveness, estimators
countries effectiveness and control
voice of with RE
of corruption have higher
accountability
reported air emissions of
and corruption
PM2.5 air pollution
Source: Author’s compilation from selected articles in Scopus

2.3 SEM in the energy-environment-growth nexus

Over the years, a handful of research conducted in the study of EEGN have applied simultaneous
equations to determine reverse causality among the variables and how these variables are endogenously
determined in the same structure. The table below summarizes some of the important studies in the past
using simultaneous equation modelling in the energy-environment -growth nexus.

Table 3 (previous energy-environment-growth nexus using simultaneous equation)

Countries
/ Estimation
Author(s) Period Areas Method Summary of main findings
68 high and Structural
upper- equation of
Armenin & Menegaki
1985-2011 middle simultaneous GDP↔Energy, Energy→Pollution,
(2019)
income equation GDP→Pollution
countries models

19
 No energy equation, but energy used to
Abdouli and Hammani 17 MENA Difference
1990-2012 explain pollution, Energy→pollution,
(2017a) countries GMM
GDP↔pollution
GMM for
Abdouli and Hammani 17 MENA panel data, No pollution eqaution, GDP↔Energy,
1990-2012
(2017b) countries 2SLS & Pollution→Energy
3SLS
11 West System
Adewuyi and Awodumi GDP↔Energy, Pollution→Energy,
1980-2010 African GMM and
(2017) GDP↔pollution
Countries 3SLS

85 POLS, FE &
No energy equation, but energy used to
developed RE
Bhattacharya et al explain pollution and GDP
1991-2012 and estimation,
(2017) Energy→pollution, GDP→pollution,
developing system GMM
GDP→Energy
countries and FMOLS

Institutional quality (economic

Darvishi and Varedi 30 freedom) included.
1990-2015 2SLS
(2018) Countries Institutions→GDP,
Institutions→pollution
GMM for
No pollution, nuclear energy ↔GDP
17 panel data,
Omri et al (2015) 1990-2011 and GDP→renewable energy,
Countries 2SLS &
pollution→nuclear energy
3SLS
Source: Author’s compilation from selected articles in Scopus

2.4 Summary of Literature Review Findings

Empirical investigations have divergent findings in their attempt to unravel the nature of relationship
that exist among the energy-environment-growth nexus. Most of these studies differ in terms of
methodology, geographical area monitored, economic, political and social characteristics of the
countries and time period covered. However, majority of them have established and confirmed
bidirectional hypotheses between economic growth and energy. Studies by Wawrzyniake & Wirginia as
well as Dieudonne all confirmed a U-Shaped EKC hypotheses among energy use, environmental
degradation and economic growth. Menegaki et al studies also failed to confirm the existence of EKC
in their works. Studies by Omri et al and a few other works proffered unidirectional relationship among
energy-environment-growth nexus.

20
Lack of unison in the findings of previous studies clearly suggests ambiguity in existing literature
requiring more enquiries into the nexus among energy use, economic growth and environmental quality
and the impact of other political and socioeconomic factors such as institutions and globalization.
Moreover, many studies on the energy-environment-growth nexus have been conducted on country
specific (individual country), cross-country (group of countries) and regional blocs basis but is worth
mentioning that most of these studies especially the cross-country or regional blocs investigations were
done in developed economies. Literature on Sub-Saharan Africa and Africa in general is scant especially
taking into consideration the impact that our institutions can have on this nexus.

Although recent empirical studies by Dieudonne (2020) have provided some explanation on the
relationship between pollution emission and institutions nexus in Africa, it is on unable to provide any
explanation on institutions on country with respect to per capita income levels.
One of the major contributions of this study will be to probe whether classification of countries based
on their per capita income (low-income and middle-income economies) have any influence on energy-
environment-growth nexus in SSA by incorporating globalization and institutional quality into the nexus

21
 CHAPTER THREE
METHODOLOGY

3.1 Introduction:
This chapter presents the theoretical framework and empirical model employed in this study to
investigate the impact of globalization and institutions on the nexus among energy use, economic growth
and environmental quality in the Sub-Saharan Africa region. It also discusses the statistical methods and
necessary diagnostic test within the panel regression that are employed to analyze the effects of
globalization and institution on the energy-environment-growth nexus.

3.2 Data Sources and Variable of Interest selection

This study uses secondary data. The data set are extracted from three main source:

1. World Development Indicators (WDI) for data on pollution, gross domestic products, gross fixed
capital formation, industrialization, and urbanization
2. World Governances Indicators (WGI) for institutional quality data on corruption, political
stability, governance effectiveness, regulatory quality and rule of law
3. Konjunkturforschungsstelle (KOF) Globalization Index.

The selection and choice of variable of interest for the purposes of this study to empirically investigate
the nexus among economic growth, energy consumption and environmental quality on one and to extend
the model by incorporating globalization and institutional measures to examine their impact on the
energy-environment-growth nexus on the other hand was underpinned by a selected number of the
global Sustainable Development Goals (SDGs) which may have direct or indirect linkage with this
nexus. Below are examples of some of the SDGs are as follows:

➢ SDG7- Affordable and Universal Access to clean energy, this is directly related to energy
consumption, environmental quality as well as climatic change conditions
➢ SDG8- Full and Productive Employment, this goal has direct linkage with economic growth.
Sustained economic growth is promoted by encouraging greater and higher levels of
productivity plus innovations through technological advancement.
➢ SDG13- Climate Conditions, this relates to pollutions and emissions from human induced
activities in our drive for growth. Despite the glaring and daring consequences threatening the
climate system which has become a global concern calling for swift and practical measures to
lessen climatic related calamities using both political will and technological measures in the
consumption and production of goods and services.
22
 ➢ SDG16- Government Institutions, promote peaceful and inclusive societies for sustainable
development, provide access to justice for all and build effective, accountable and inclusive
strong institutions at all levels.
➢ SDG17- ensure more interconnectedness through partnership, thereby fostering improved
access to knowledge and technology which berth innovations. This is directly in line with
globalization measures.

3.3.1 Equation Modelling & Methodology

Following from the various research studies reviewed in conjunction with theoretical framework, the
subsequent sections will be an attempt to formulate models to capture the interrelationship among
economic growth, energy consumption and environmental quality on one hand equation and further
expand the equations to incorporate globalization and institutional quality variables (i.e government
effectiveness, rule of law, regulatory quality, political stability and control of corruption) on the other
hand
Other variables such as Capital Formation (K), Industrialization(Ind) and Urbanization(Urb) will be
introduced in the model to uniquely and independently assist in identifying the systems of equations in
each model. As indicated by Arminen, Greene and Roodman , the most important part of building
Simultaneous Equation Model is to be able to identify the so-called ‘structural equations’; each equation
in the system has to be specified based on theory and each structural equation should include one variable
that is not included in other equations, so that it can be used as an instrument to uniquely identify the
model
This study uses secondary data. The data extracted from three main sources: World Development
Indicators (WDI) for environmental and macroeconomic variables, World Governance Indicators (WGI)
for institutional and governance indicators and Konjunkturforschungsstelle (kof) Globalization Index.

To examine the relationship among the variables selected for the study, annual frequency data spanning
from 1995 to 2017 were used. The sample covers forty-two (42) Sub-Sahara African countries consisting
of twenty-one (21) low, fourteen (14) lower-middle and seven (7) high & upper-middle income
economies across the sub-region.

The systems of equations for the purposes of this study will comprise of three main strands of empirical
studies from the;
• Economic growth function/model
• Energy Consumption function/model
• Environmental Pollution Function

23
Each model above shall consist of two set systems equation. The first set of systems equations in the
modeling will focus on the traditional energy-environment- growth (i.e growth, energy consumption
and pollution) whereas the second set of equations will be expanded to incorporate globalization and
institutional quality to capture the impact of these variables or phenomena within the augmented energy-
environment-growth nexus.
3.3.2. Energy-Environment- Growth Equation Models
Fundamentally, the energy-environment-growth concept is about determining the causal
relationships among energy use, environmental quality and economic growth, therefore the estimation
method utilized in this study should allow the three variables to be determined while allowing for reverse
causality among them. To achieve this objective, an unconventional method of system equations
involving three simultaneous equations model that allows for three equations: one for economic growth,
one for energy consumption and one for pollution would be employed.

To empirically investigate the nexus among economic growth, energy consumption and Carbon
Emissions (represented as Pollution), the models for the traditional energy- equations are formulated as
follows;
➢ The Economic Growth Function: GDP=f(EC, POLL,K)………………………………….....(1)
➢ The Energy Consumption Function: EC=f(GDP, POLL,IND)……………………………....(2)
➢ The Environmental Pollution Function :POLL = f(GDP2, EC, URB) …………………….…(3)
Where;
GDP = Gross Domestic Products
EC = Total Energy Consumption and
POLL = Pollution
K = Physical Capital
IND = Industrialization
URB = Urbanization

From the above, these set of equations and variables can be transformed in a log-linearized form into
the same unit and base as below;

lnGDP = β1lnECit + β2lnPollit + β3Kit +μ11it ------------------------------------------------------------------------------------------------- (4)

lnEC = α1lnGDPit+α2Pollit+ α3INDit +μ21it ------------------------------------------------------------------------------------------------- (5)

lnPoll = λ1lnGDP2it + λ2lnECit + λ3URBit +μ31it ------------------------------------------------------------------------------------------------- (6)

24
3.3.3 Expanded or Augmented Energy-Environment -Growth Equation Model
Following from the equations 4,5 & 6 above, we proceed to formulate the augmented/expanded energy-
environment-growth model by incorporating globalization and institution measures in our systems of
equation as follows:
➢ The Expanded Economic Growth Function: GDP=f(EC, POLL,K, KOF,INST)…………....(7)
➢ The Expanded Energy Consumption Function: EC=f(GDP, POLL,IND, KOF,INST)…………..(8)
➢ The Expanded Environmental Pollution Function : POLL = f(GDP2, EC, URB, KOF,INST) …(9)
Where ;
GDP = Gross Domestic Products
EC = Total Energy Consumption and
POLL = Pollution
K = Physical Capital
IND = Industrialization
URB = Urbanization
KOF= Globalization
INST= Institutions (i.e government effectiveness, rule of law, corruption, political stability and
regulatory quality)

As mentioned earlier, the institution variables will be measured from the five(5) main institutional
quality measures (i.e government effectiveness, rule of law, political stability, control of corruption and
regulatory quality) as measured by the World Governance indicators (WGI).
The log-linearized transformation function for equations 7, 8 and 9 for countries i at time t can then be
written as:

lnGDPit =β0+β1lnECit + β2lnPollit + β3 lnKit + β4lnKOFit+ β5lnGEit + β6lnRLit + β7lnPSit + β8lnRQit

μ
+ β9lnCCit + 1it ……eq (10)

lnECit =α0+α1lnGDPit+α2lnPollit +α3lnINDit+α4lnKOFit+ α5lnGEit+α6lnRLit+α7lnPSit + α8lnRQit

+ α9lnCCit + μ2it ……eq (11)
lnPollit= λ0 + λ1lnGDPit + λ2lnECit + λ3lnURBit + λ4lnKOFit + λ5lnGEit +λ6lnRLit +λ7lnPSit + λ8lnRQit
+λ9lnCCit + μ3it……eq (12)

25
 3.5.1Table 4 (data description and sources).

S/N Variable name Symbol Definition Unit Source

Is the gross domestic product divided World
In constant 2010
1 Economic Growth GDP by the midyear population (GDP per Development
US$
capita) Indicator

Kg of oil World
Energy
2 EC It includes petroleum products, equivalent per Development
Consumption
natural gas, electricity, and capita Indicator
combustible renewable and waste
Measured by Carbon dioxide
World
produced during consumption of Metric tons per
3 Pollution Poll Development
solid, liquid, and gas fuels and gas capita
Indicator
flaring

Globalization implies the interaction

among people in perspectives to KOF Index of
4 Globalization KOF Index (0-100%)
broader outlook of free transfer of Globalization
capital, goods and services

World
industry (including construction), Development
5 Industrialization IND % GDP
value added Indicator

World
6 Capital K gross fixed capital formation % GDP Development
Indicator

An index of government
Government
7 GE effectiveness, range from -2.5(weak) index (-2.5 to 2.5) World
Effectiveness
to 2.5(strong) governance Governance
performance Indicator

8 Political Stability PS An index of political stability, range index (-2.5 to 2.5) World
from -2.5(weak) to 2.5(strong) Governance
governance performance Indicator
World
Regulatory An index of regulatory quality, range
9 RQ index (-2.5 to 2.5) Governance
Quality from -2.5(weak) to 2.5(strong)
Indicator
governance performance

An index of rule of law, range from -

World
2.5(weak) to 2.5(strong) governance
10 Rule of Law RL index (-2.5 to 2.5) Governance
performance
Indicator

An index of control of corruption, World

Corruption
11 CC range from -2.5(weak) to 2.5(strong) index (-2.5 to 2.5) Governance
Control
governance performance Indicator

Source: www.worldbank.org/data and www.statista.com/globalization index 2018

26
3.6 Simultaneous Equation Modelling (SEM)
In undertaking an empirical investigation into the Energy-Environment-Growth Nexus, the study
employs panel data regression analysis with STATA/IC 16.0 as the main analytical software. With
simultaneous equations modelling, there are two options regarding estimations. These are single-
equation and system estimation. Wooldridge (2016, Introductory Econometrics, A Modern Approach)
in Chapter 16 covers the pros and cons of both methods, whiles Arminen (2018, The Economics and
Econometrics of Energy-Growth Nexus) in Chapter 10, discussed simultaneous equation modelling in
the Energy-Environment-Growth context. Both scholars placed emphasis on the need to correctly
specify the model as it plays a key role in the evaluation.

To Arminen, system estimation is asymptotically more efficient than single-equation estimation if the
model happened to be correctly specified, but if even one of the structural equations is mis-specified, all
structural parameters in the entire model are contaminated in system equations.

To avoid such contamination, previous empirical studies have resorted to using the dynamic panel
generalized methods of moments (GMM) estimators of Arellano and Bond (1991), and of Arellano
and Bover (1995) and Blundell and Bond (1998) also respectively called difference and system GMM
estimators.

The key fundamental question in the Energy-Environment-Growth Nexus (EEGN) is the nature of the
causal relationship among the investigated variables (i.e. energy use, economic growth and
environmental degradation).

One key advantage of SEM over the Granger Causality test under the EEGN is the former’s ability to
account for the fact, it is possible that economic growth, energy consumption and environmental
degradation are simultaneously determined or that there exists reverse causality among the variables.

In addition to the above, there is also a clarion by researchers in the field for examination of both the
sign (±) and magnitude(δ) of the relationship among the variables of interest. This call, is an indication
that something other than Granger Causality test should be used in analyzing the nexus among energy
consumption, economic growth and environmental quality.

Other benefits of the SEM approach are that it has a strong theoretical background in the production
function model and that it allows for including control variables to avoid the omitted variables bias.

27
Using panel data in SEM can thus alleviate the problems related to the relatively short time series
available for variables often used in the Energy Growth Nexus (EGN). In addition, it makes it easier to
control for heterogeneity across countries because it allows for controlling for country-specific-effects.

According to Wooldridge (2016), in estimating SEMs with panel data consists of two steps. The first
step, which becomes necessary due to the endogeneity problem, is to eliminate the unobserved
individual effects from structural equations with the fixed-effects transformation or first differencing.
The second is to find instruments for the endogenous explanatory variables (first differencing of the
endogenous variables in the SEM) in this transformed equation. In general, it is usually a difficult task
to find a suitable valid external instrument

The structural equation of a simultaneous equation modelling as stated by Arminen et al 2019, can be
written as:

yit = xitβ+δyit- + ci + εit

1

where the subscript i denotes cross-sectional units (here: countries) and t time (here: three-year periods).
It is assumed that the error term is composed of the fixed individual effects ci and the shocks εit with the
following properties: E[ci] = E[εit] = E[ciεit] = 0.

Differencing the equation eliminates the individual effects ci, resulting in thus:

∆yit = (∆xit )β+δ(∆yit-1 )+ ∆εit, where Δ is the first-difference operation

3.7 Estimation technique

For the purpose of this study, the dynamic panel data models in a simultaneous-equations in which
lagged levels of economic growth, energy consumption and carbon emission are estimated by using
system dynamic panel GMM by Arellano-Bover/Blundell-Bond estimation techniques. This approach
uses sets of instrumental variables to overcome the problem of endogeneity among the regressors.
The proposed modeling is as follows.

gYi,t =β0gYi t-1 + λgECi,t + λgpolli,t + ɸX`+ μ11i,t + εi,t

gECi,t = α0gECi, t-1 + ψgYi t-1 + ψgpolli,t + ɸX`+ μ21i,t + εi,t

gPolli,t = ξ0gpolli,t-1 + θgYi t-1 + θgpolli,t +ɸX`+ μ31i,t + εi,t

i=1,………..,N ; t = 1,………….,T.

Where gYi,t, gECi,t and gPolli,t respectively indicates growth rate of GDP , Energy Consumption
and pollution.

28
β0,α0 and ξ0 are the parameters to be estimated for economic growth model whereas X is a vector of
core explanatory variables used economic growth, energy consumption and carbon emission (gross
capital formation, industrialization, urbanization, globalization, corruption, political stability,
government effectiveness, rule of law and regulatory quality )

λ- captures the effects of energy consumption and pollution on economic growth.

Ψ- captures the effects of economic growth and pollution on energy consumption
Θ- captures the effects of economic growth and energy consumption on pollution

3.8 Summary of Methodology

Below is a summary of methodology as captured in this chapter

❖ The Economic Growth model: The theoretical framework and the equations in this study draws
heavily from Arminen and Menegaki (2019) and Xia (2012), Liu (2005) and Hung and Shaw (2004)
with modifications to their models by incorporating globalization and institutional quality measures into
the framework.
As discussed by Arminen (2019), many existing EEGN research have included physical capital and
labour in the production function, while considerably fewer studies have accounted for the impact of
human capital on economic growth. Furthermore, energy consumptions generally considered a factor of
production within the nexus (see e.g. Apergis and Payne, 2009b, 2010; Omri, 2013; Sadorsky, 2012;
Sharma, 2010, Stern 1993,2000). Saidi and Hammami (2015) have also regarded energy as a necessary
complement to the more traditional factors of production. In contrast, apart from Bhattacharya et al.
(2017) and Sekrafi and Sghaier (2016), it has been relatively rare to include institutional quality in any
form in the production function.
As in Welsch (2004), globalization and institutional quality are included in the final production function
in linear form because of ‘the lack of compelling theoretical basis for deriving a specific way in which
globalization and institutional quality affects income’. Costantini and Monni (2008) also included their
measures of institutional quality (defined endogenous in their 2SLS and 3-SLS estimations) in linear
form in the growth equation they estimated.

Energy consumption, physical and human capital are assumed to be direct factors of production with
globalization stimulating global trade and investment, they are expected to have increased impact on
economic growth. Low levels of institutional quality are expected to have a detrimental effect on income levels.

29
❖ Energy Consumption Function: This follows Shahbaz and Lean (2012) framework of energy
function and augmenting the up-to-date energy-environment-growth literature by incorporating
globalization and the five basic institutional quality measures in the energy consumption function.
Because energy consumption usually increases with economic growth (e.g. Omri, 2013, Sadorsky, 2010,
Zhang and Cheng,2009), the parameters for economic growth and industrialization should be positive
because higher degree of industrialization leads to economic growth and its resultant increases in energy

use. Globalization is expected to be either positive or negative i.e α4± globalization is known to stimulate global
trade, investment and other economic activities, which possibly causes an upturn in energy consumption (Latif et
al., 2018; Cole, 2006). On the other hand, globalization also enhances knowledge and technology transfers, thus
promoting efficient energy use (Shahbaz et al., 2016b). Furthermore, since low institutional quality measures
reduce energy policy stringency (Fredriksson et al., 2004) it implies, host countries with are strong institutions
are expected to have a positive and efficient impact on energy demand.

Pollution function: This paper adapts an extension of the basic model of Grossman and Krueger (1995), which
examines the relationship between the level of development and pollution indicators. In its canonical form, the
model establishes an empirical and non-linear relationship between a pollution indicator and GDP per capita. The
pollution function follows the up to date EKC literature on the impact of energy use, globalization and institutional
quality.

As to the expected signs of the coefficients, economic growth is expected to be positive and GDP2 negative
because improve standard of living is expected to lower the rising levels in pollution and carbon emissions capture
the inverted U-Shape of the EKC hypothesis.
Latef et al 2018, also indicated that globalization stimulate economic growth that can possibly causes upturn in
energy use and impinges environmental quality. Also, globalization enhances technology transfer, thus promoting
efficient energy use and decreasing negative influences on the environment hence λ4 can either be positive or
negative. Dieudonne (2020) also indicated that, improvement in institutional quality has negative and significant
effect on pollution

30
 CHAPTER FOUR
PRESENTATION AND DISCUSSION OF RESULTS

4.1 Introduction
Results from the estimation of the effect of globalization and institutional quality on Energy-
Environment-Growth Nexus in Sub- Saharan Africa is presented and analyzed under this chapter. The
empirical analysis uses annual data of 42 Sub-Saharan African countries for a 23-year period (1995-
2017). There are six (6) sections under this chapter. The next section presents the summary descriptive
statistics (section 4.2) of variables used in the model whilst sections 4.3 and 4.4 will discuss results and
tables for Unrestricted and Restricted Models with section 4.5 ending this chapter with concluding
remarks for the sub-panels as well as the regional panel.
The results are based on Stata/IC version 16.0 and the model xtabond2 by David Roodman (2009) to
run the empirical analysis. The estimation is based on the more efficient asymptotically two-step
gmm estimators for both the restricted and unrestricted models as below.

The results for the models are presented below starting with the summary of descriptive statistics.

Table 5 (Descriptive Summary Statistics by Panel)

GDP
Panel Statistics
($m)
EC Poll GCF Ind Kof Urb GE RL CC PS RQ
High- & Mean 55,600.00 1,013.41 3.69 26.34 24.34 54.51 56.02 0.09 0.93 0.02 0.50 (0.94)
Upper-
Std. Dev. 1,160.00 975.74 2.78 7.35 9.35 9.24 14.57 0.75 0.73 0.01 0.49 0.73
Income
Countries 0.02 0.96 0.75 0.28 0.38 0.17 0.26 8.41 0.78 0.46 0.97 (0.77)
in SSA CV
Lower- Mean 40,500.00 279.52 0.56 19.78 29.02 47.46 44.33 (0.59) (0.56) (0.51) (0.42) (0.57)
Middle
Std. Dev. 7,850.00 239.11 0.31 12.79 15.36 6.80 12.86 0.51 0.68 0.69 0.93 0.53
Income
Countries 0.19 0.86 0.56 0.65 0.53 0.14 0.29 (0.86) (1.20) (1.36) (2.21) (0.93)
in SSA CV
Low Mean 6,710.00 83.87 0.37 17.29 16.22 40.49 31.35 (0.89) (0.81) (0.72) (0.69) (0.76)
Income 769.00 15.92 0.32 10.19 8.14 7.78 15.85 0.51 0.55 0.55 0.85 0.54
Countries Std. Dev.
in SSA CV 0.11 0.19 0.87 0.59 0.50 0.19 0.51 (0.58) (0.69) (0.76) (1.23) (0.71)

Mean 26,100.00 604.01 0.94 19.29 23.18 45.15 39.79 (0.64) (0.59) (0.53) (0.40) (0.58)
Regional
Panel Std. Dev. 6,870.00 545.38 0.70 11.28 14.66 9.33 17.38 0.64 0.69 0.70 0.93 0.63
(SSA) 0.26 0.90 0.75 0.58 0.63 0.21 0.44 (1.01) (1.19) (1.32) (2.31) (1.08)
CV
Source: Author’s computation
Note: Std. Dev (Standard Deviation), CV(Coefficient of Variation), GCF(Gross Capital Formation in % GDP), GDP (Gross
Domestic Product measured in millions of $ at 2010 constant), EC (Energy Consumption in kilogram of oil equivalent), Poll(Air
pollution measured by CO2 emissions in metric tons per capita), Ind (Industrialization in % GDP), Kof (Globalization index), Urb
(Urbanization measured in %), GE (Government effectiveness), RL (Rule of Law), CC (Control of Corruption), PS (Political
Stability) and RQ (Regulatory quality)

31
4.2 Results interpretation Descriptive Statistics:
The mean value, the standard deviation, and the coefficient of variation of different variables for the
sub-panels as well as the regional panel are given above in Table 5. The table provides a statistical
summary associated with the actual values of the used variables for each sub-panel.
Based on the statistics recorded in table 5, it is evidently clear that, the highest average of GDP
per capital is recorded for the high & upper-middle income countries compared to the lower-middle-
and low-income countries. It is also worth highlighting that, the overall economic output of seven (7)
high & upper-middle income countries are about 1.4 and 8.3 times more than the fourteen (14) and
twenty-one (21) Lower-middle- and low-income countries respectively.
For the period under review (1995-2017), the overall economic output for the 42 SSA countries has
averaged US$26.1billion per annum.
Energy consumption is measured by kg of oil equivalent per capita. The mean growth rate of
energy consumption per capita is highest for the high & upper-middle income countries, followed by
Lower middle- and low-income countries. It was also noted that the high & upper-middle income
countries recorded coefficient variation of 0.96 in terms of in energy consumption, which is the highest
when compared to other panels for the same period.
Air Pollution proxy by CO2 emissions per capita in metric tons. The mean value of 3.69mt per
capita is the highest for the high & upper-middle income countries, followed by Lower middle- and low-
income countries. The countries coefficient of variation follows the same trend with the high & upper-
middle income countries recording a volatility measure of 0.96 compared to the 0.86 and 0.19 recorded
for lower-middle and low-income countries.
Finally, Gross capital formation, industrialization, globalization and institutional quality
measures follows same trend with regards to the high & upper-middle income countries recording the
better of the statistics followed by the lower-middle income countries and low-income countries
respectively.

4.3. Main results and discussions

The empirical results of system GMM estimations for the forty-two (42) selected Sub-Sahara African
Countries presented are presented in tables 6-10 below. The countries and the results have been
categorized on sub-groupings based on income levels as follows;
• Low Income
• Lower-Middle Income
• High & Upper Middle Income
• Regional Panel
Interpretations and results discussions are summarized under each panel/table. Each model results are
made of a restricted and unrestricted estimated parameter and summarized in the tables below as follows

32
 Table 6 (Two-Step System GMM Simultaneous Equation Estimation for Low Income
Countries in SSA)
21 LOW INCOME COUNTRIES IN SSA (Benin, Burkina, Burundi, Central Africa Rep., Chad, Djibouti, DR. Congo, Eritrea,
Ethiopia, Gambia, Guinea, Guinea-Bissau, Liberia, Madagascar, Malawi, Mali, Niger, Rwanda, Sierra Leone, Togo, Uganda)
MODEL 3 (POLLUTION EMISSION
MODEL 1 (ECONOMIC GROWTH) MODEL 2 (ENERGY CONSUMPTION) MODEL)

Restricted Unrestricted Restricted Unrestricted Restricted Unrestrict

Model Model Model Model Model ed Model
Variables Variables Variables
Est. Coef Est. Coef Est. Coef/ Est. Coef/ Est. Coef/ Est. Coef/
(P-Values) (P-Values) (P-Values) (P-Values) (P-Values) (P-Values)
0.995*** 0.753*** 0.509*** 0.813*** 0.844*** 0.786***
gdp (L1.) ec (L1.) poll (L1.)
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
0.015 0.101 0.011 0.016 0.005* 0.006**
ec gdp gdp
(0.414) (0.335) (0.611) (0.459) (0.088) (0.016)
-0.017 -0.205 -0.049 -0.145 0.025* 0.037**
poll poll ec
(0.642) (0.377) (0.713) (0.204) (0.068) (0.048)
0.062 0.487 0.009 0.008 0.017 0.005
k ind urb
(0.469) (0.382) (0.944) (0.903) (0.386) (0.992)
0.992*** -0.156* -0.022
kof -- kof -- kof --
(0.009) (0.070) (0.652)
-0.184 -0.175 -0.238*
GE -- GE -- GE --
(0.734) (0.660) (0.078)
0.087 -0.353 0.185
RL -- RL -- RL --
(0.918) (0.233) (0.288)
-0.032 0.215 -0.024
CC -- CC -- CC --
(0.908) (0.178) (0.777)
-0.245 0.218 0.128*
PS -- PS -- PS --
(0.338) (0.058)* (0.063)
0.507 0.035 -0.056
RQ -- RQ -- RQ --
(0.507) (0.889) (0.678)
Relevant Statistical Test Relevant Statistical Test Relevant Statistical Test
1.Obs. 462 462 1.Obs. 462 462 1.Obs. 462 462
2.Group 21 21 2.Group 21 21 2.Group 21 21
3. Inst. 6 12 3. Inst. 7 13 3. Inst. 6 12
4.Hansen 4.Hansen 4.Hansen
J-test (0.606) (0.297) J-test (0.242) (0.270) J-test (0.085) (0.129)
5.AR (2)- 5.AR (2)- 5.AR (2)-
test (0.308) (0.336) test (0.824) (0.889) test (0.707 (0.233)
Figures in parentheses () are estimated p-values. *** ,** and * denotes significant at 1%, 5% and 10% respectively. The Dynamic Panel GMM
estimator of Arellano- Bover/Blundell-Bond (1995/8) are used for the System GMM estimation. The models are based on two steps, and the
estimations are based on xtabond2 simulations by Roodman, 2009. All variables are in natural logarithm.
Hansen J-test for over-identification restriction: H0 = the set of instruments is valid, Arellano-Bond (AR2) test for autocorrelation: H0 = no
autocorrelation. L1. denotes lagged dependent variables

4.3.2: Low Income Countries’ results interpretation and discussions

Results interpretation: The results for Economic Growth model presented in table 6 above,
surprisingly revealed that, energy consumption is less a statistically significant factor of production or
economic growth for low income economies in SSA for both the restricted and unrestricted models.

33
Interestingly, according to the unrestricted model, Globalization (define as economic & social
integration, market liberalization, trade openness, capital flow, technology transfer etc.) appeared to
have positive and statistical significance on economic growth for the twenty-one low-income economies
of Sub-Sahara Africa.
With a magnitude of 0.992, the implication is that, on average a percentage increase in the overall level
of globalization is associated with a 0.99% increase in real GDP growth at the 1% significance level for
the selected low-income countries ceteris peribus.
Surprisingly, gross capital formation and all the five institutional quality measures (i.e., corruption,
government effectiveness, rule of law, regulatory quality and political stability) were found to be less
significant factors in determining economic growth for low-income countries in SSA over the period for
this study.
As far as the post-estimation and relevant statistical test of the models are concerned, Hansen test for
over-identification restriction with p-values of 0.148 and 0.297 for restricted and unrestricted models
respectively, the implications are that the instruments were valid at 10% risk level, hence we cannot
reject the null hypothesis.
The second order serial correlation AR (2) meant to serve as robust check to AR (1) indicated that the
model estimators were consistent and valid. Besides, in correspondence with Roodman’s (2009) rule-
of-thumb, the number of countries (groups) is evidently larger than the number of instruments in the
models.
According to the empirical results for Energy Consumption model, here again, globalization was
found to have a reducing effect on energy consumption. Statistically, it was revealed that a percentage
increase in the level can lead to 0.16% reduction in energy demand due to efficient energy policy
measures as well advance technologies transfer that is usually associated with efficient energy utilization
for low income economies of SSA.
Finally, in model 3 (Pollution Function), it was revealed that, economic growth and energy
consumption both have direct association with pollution. Results of the restricted model indicated that
with coefficients of 0.005 and 0.025 respectively for real GDP and energy use , by implication, 1 percent
increase in real GDP and energy consumption can potentially cause pollution especially emission of
CO2 to also increase by 0.005% and 0.025% at 10% significance level for low-income economies of
SSA.
Similarly, the unrestricted model, also both real GDP and energy consumption being statistically
significant at the 10%
It is worth noting that, because GDP per capital was statistically significant in model 3, the results does
not necessary learn support for the EKC hypothesis. This could be attributed to poor energy consumption

34
policy measures and implementations, deforestation, desertification, and lack of clean source of energy
can all be a contributing factor for the existence of EKC in SSA low-income economies.
In summary, the results indicated there was no significant causality between GDP per capita and Energy
Consumption per capita in low-income economies within the SSA region, thus lending support to the
neutrality hypothesis of the Energy-Growth Nexus (EGN). However, there exist unidirectional
causalities from energy consumption to pollution emissions and from economic growth to pollutions
growth thus supporting the growth and conservative hypotheses respectively
However, there were not enough evidence to confirm any form of EKC hypothesis, there exist a
phenomenon of environmental pressures increasing in the early stages of economic growth within the
low-income economies of SSA causing excessive release of pollutants due to extensive and intensive
exploitation of natural resources associated with the greater use of production resources and adoption of
certain production technologies for the growing economies (Nutnaree et al, 2020).

Summary of key findings for the 21 Low Income Economies within Sub-Sahara Africa
 For the panels without the Globalization & Institutions measures, it was found that, the lagged
of the dependent variables were statistically significant in the all the three models (i.e. economic
growth, energy consumption and pollution emissions) in respect of the 21 low income economies
sampled within SSA
 Under the same groupings, Energy consumption and real GDP were also found to have statistical
significance under the model for the pollution function
 With the introduction on globalization and institutions into the expanded model, in addition to
the lagged dependent variables, Globalization was also found to have a positive impact at the
5% statistical significance level on economic growth whereas it has a reducing effect at 10%
significance level on energy consumption.
 Similarly, economic growth, energy use and political stability measures were found to have
increasing effects on pollution emission whereas government effectiveness and regulatory
quality post a reducing effect on pollution other things being equal
 In respect with our hypothesis regarding causality among the variables, it was found that, there
were no causal relationship between Economic Growth and Energy Consumption for the 21
selected low income economies within SSA, i.e ‘‘lending support to the neutral/or no feedback
hypothesis for the period under review’’
 However, the results supported the unidirectional causality between energy consumption and
pollution i.e ‘that is, energy consumption have statistically significant effect on pollution thereby
lending support to the growth hypothesis’’ under the Energy-Environment-Growth Nexus.
Additionally, we found that there is also unidirectional conservative hypothesis between
economic growth and pollution emissions, that is economic growth induces and reduces
environmental quality among the 21 selected low-income economies within SSA.

35
 Below is a diagram representing the interactions among GDP, Energy Consumption and Carbon
dioxide emissions for Low-Income Economies of SSA

Real GDP Energy

per capita consumption

CO2
Emissions

Figure 1, summary of interaction among the three (3) dependent variables i.e economic growth, energy consumption and
pollution emissions for high & upper-middle income economies of SSA.

36
 Table 7 (System GMM Simultaneous Equation results for Lower-Middle Income Panel in
SSA)
14 LOWER MIDDLE-INCOME COUNTRIES IN SSA (i.e. Angola, Cameroun, Cape Verde, Congo Republic, Cote D'Ivore,
Ghana, Kenya, Mauritania, Nigeria, Lesotho, Sao Tome Principe, Senegal, Sudan & Zambia)
MODEL 3 (POLLUTION
MODEL 1 (ECONOMIC GROWTH) MODEL 2 (ENERGY CONSUMPTION) EMISSION MODEL)
Restric Unrestric
Restricted Unrestricted Restricted Unrestricted ted tedMode
Model Model Model Model Model l
Est. Est.
Variables Variables Variables
Est. Coef Est. Coef Est. Coef/ Est. Coef/ Coef/ Coef/
(P-Values) (P-Values) (P-Values) (P-Values) (P- (P-
Values) Values)
1.001*** 0.922*
0.805*** 1.063*** 0.578*** 0.799***
gdp (L1.) (0.000) ec (L1.) poll (L1.) **
(0.000) (0.000) (0.000) (0.000)
(0.000)
-
0.019 0.035** 0.068*** 0.134*** -0.009**
ec gdp gdp 0.0001
(0.555) (0.039) (0.000) (0.001) (0.019)
(0.817)
-
-0.129 0.051 -0.239 -1.535*** 0.036* -0.032**
poll poll ec
(0.529) (0.563) (0.559) (0.000) ** (0.021)
(0.001)
0.001 0.012 0.309** 0.127 0.001 -0.039
k ind urb
(0.986) (0.548) (0.020) (0.686) (0.795) (0.319)
-- 1.135*** -- -0.823*** -- -0.030
kof kof kof
(0.000) (0.005) (0.416)
-- 0.158 -- -0.167 -- -0.146
GE GE GE
(0.263) (0.632) (0.328)
-- -0.039 -- -0.015 -- 0.167
RL RL RL
(0.683) (0.979) (0.133)
-- -0.209 -- 0.043 -- -0.039
CC CC CC
(0.290) (0.828) (0.572)
-- -0.117 -- 0.044 -- 0.120
PS PS PS
(0.214) (0.823) (0.159)
-- 0.021 -- -0.088 -- -0.077
RQ RQ RQ
(0.910) (0.283) (0.477)
Relevant Statistical Test Relevant Statistical Test Relevant Statistical Test
1.Obs. 308 308 1.Obs. 308 308 1.Obs. 308 308
2.Group 14 14 2.Group 14 14 2.Group 14 14
3. Inst. 6 11 3. Inst. 11 12 3. Inst. 6 12
4.Hansen 4.Hansen 4.Hansen
J-test (0.491) (0.338) J-test (0.138) (0.504) J-test (0.566) (0.107)
5.AR (2)- 5.AR (2)- 5.AR (2)-
test (0.851) (0.389) test (0.252) (0.707) test (0.732) (0.297)
Figures in parentheses () are estimated p-values. *** ,** and * denotes significant at 1%, 5% and 10% respectively. The Dynamic Panel GMM
estimator of Arellano- Bover/Blundell-Bond (1995/8) are used for the System GMM estimation. The models are based on two steps, and the
estimations are based on xtabond2 simulations by Roodman, 2009. All variables are in natural logarithm.
Hansen J-test for over-identification restriction: H0 = the set of instruments is valid, Arellano-Bond (AR2) test for autocorrelation: H0 = no
autocorrelation. L1. denotes lagged dependent variables

37
4.3.3: Lower-Middle Income Countries’
Results Interpretation and discussion: According to the results of the unrestricted models for
economic growth, energy consumption and pollution models presented in table 7 in respect of the
fourteen lower-middle income economies of SSA, the findings revealed that there exist bi-directional
causal relationships among economic growth and energy consumption as well as energy consumption
and Pollution Emissions, thus confirming the feedback hypotheses whereas there is unidirectional
causal relationship from economic growth to carbon emission. It follows that, the results are consistent
with recent studies on this subject by Arminen and Menegaki (2019).
In model 1(economic growth) under the lower-middle income panel, the results revealed that energy
consumption and globalization have positive and statistically significant effects on economic growth.
The magnitude of 0.035 implies that at the 5% significance level, a 1 percent increase energy
consumption can induce about 0.04% increase in economic growth, thus supporting the growth
hypothesis and highlights the important role of energy as a key factor of production function for
economies within the lower-middle income bracket in SSA.
Similarly, with a magnitude of 1.135, by implication indicates that, a percentage increase in the level of
globalization can directly increase economic growth within the SSA lower-middle income economies
by 1.14% at the 1% significance level ceteris peribus.
The results of the Hansen test for over-identification restriction proves the instrument were valid as well
as the Arellano-Bond test for second order serial correlation were found to be consistent, hence we could
not reject null hypothesis. More so, the number of instruments were significantly lower than the number
of groups or countries, hence the models pass the test according to Roodman’s rule of-thumb.
According to the results of the unrestricted or expanded model with globalization and institutions
measures, for the energy consumption model under Lower-Middle Income economies, the findings
highlighted the importance of economic growth, globalization, and pollution on energy consumption for
the period under review.
With coefficient estimate of 0.134 for economic growth, the implications are that, a one (1) percent
increase in real GDP can potentially increases energy consumption by 0.13% at the 1% significant levels.
The results also learn credence to the conservative hypothesis thus a unidirectional causality from
economic growth to energy consumption.

Both globalization and pollution were found to have an indirect relationship and statistical significance
impact on energy consumption within the 14 selected lower-middle income economies in SSA.
Globalization with a magnitude of -0.823 at the 1% significance level, implies a percentage increase in
the overall levels of globalization is associated with a one (1) percent reduction in energy consumption.
This phenomenon could be attributed to the positive effects of globalization with its associated

38
technology transfer and energy efficiency policies aimed at energy conservation measures and cleaner
source of energy for domestic, commercial, and industrial energy usage
Pollution on the other hand, have a strong negative and statistically significant effect (at the 1% level)
on energy consumption. The magnitude of -1.535 implies 1 percent reduction in pollution levels can
lead to about 1.54% increase in energy consumption among countries in Lower-Middle Income bracket
in SSA.
Interestingly, under the restricted model, industrialization was also found to be statistically significant
(at the 5% level) with a coefficient estimates of 0.309, implying a one (1) percent growth
industrialization drive is associated with 0.31% increase in energy demand among the nations of lower-
middle income within the SSA regions.
The post-estimation tests for the models were also valid as the study could not reject the null hypothesis
for the Hansen J-test meaning the instruments are valid. The second order serial correlation AR (2) were
additionally consistent with the GMM econometric theory.
The results for Pollution Function in model 3 above, surprisingly real GDP growth and energy
consumption were found have reducing effects on CO2 emissions for lower-middle income economies
in SSA.
The empirical model revealed that, economic performance can potentially lead to a reduction in CO 2
emissions, thus improve environmental quality. Statistically, the results indicated that a 1% increase in
economic development could reduce emissions by 0.009% at the 5% significance levels.
The results further revealed that, increase in energy consumption levels that is brought about as a result
of energy efficient measures and policies geared towards renewables and technology advancement is
associated with reduction in pollutants, hence improvement in environmental quality. Thus statistically,
a percentage increase in energy use can reduce pollution emissions by 0.03% ceteris peribus.

Summary of key findings for the 14 Lower-Middle Income Economies within Sub-Sahara
Africa
 For the Economic Growth model, only the lagged of the dependent variable was found to be
statistically significant at 1% levels for the restricted model.
 Under the unrestricted model, in addition to the lagged of the dependent variable, both energy
consumption and globalization were found to have positive increasing effect at respective 5%
and 1% statistically significance on economic growth
 Energy Consumption model revealed that both industrialization and economic growth leads to
increase in energy demand whereas globalization and pollution has a reducing effects on Energy
Use

39
  Under the Pollution emission function, energy consumption was statistically significant for both
the restricted and unrestricted models reinforcing more pollution emissions

The findings further revealed that there exist

➢ bi-directional causal relationships among economic growth and energy consumption i.e feedback
hypotheses
➢ bi-directional causality energy consumption and pollution emissions, thus confirming the
feedback hypotheses whereas
➢ unidirectional causal relationship from economic growth to pollution emission.
➢ It follows that, the results are consistent with recent studies on this subject by Arminen and
Menegaki (2019)
Below is a diagram representing the interactions among GDP, Energy Consumption and Carbon
dioxide emissions for Lower-Middle Income Economies of SSA

Real GDP Energy

per capita Consumption

CO2
Emissions

Figure 2, summary of interaction among the three (3) dependent variables i.e economic growth, energy consumption and
pollution emissions for lower-middle income economies of SSA

40
Table 8 (System GMM Simultaneous Equation results for High & Upper-Middle Income
Panel in SSA)
HIGH & UPPER MIDDLE-INCOME COUNTRIES IN SSA (i.e. Botswanan, Equatorial Guinea, Gabon,
Mauritius, Namibia, South Africa & Seychelles)
MODEL 1 MODEL 2 MODEL 3
(ECONOMIC GROWTH) (ENERGY CONSUMPTION) (POLLUTION EMISSION)
Dynamic panel-data
Dynamic panel-data estimation, Dynamic panel-data estimation,
estimation, two-step system
two-step system GMM two-step system GMM
GMM
Restricted Restricted Restricted
Model Model Model
Variables Variables Variables
Est. Coef Est. Coef/ Est. Coef/
(P-Values) (P-Values) (P-Values)
0.996*** 1.206*** 0.364***
gdp (L1.) ec (L1.) poll (L1.)
(0.000) (0.000) (0.012)
0.006*** 0.320 0.002
ec gdp gdp
(0.000) (0.421) (0.886)
0.018 -0.566 0.0500*
poll poll ec
(0.181) (0.208) (0.061)
0.027*** -2.225 0.161
k (0.010) ind urb
(0.393) (0.772)
Relevant Statistical Test Relevant Statistical Test Relevant Statistical Test
1.Obs. 154 1.Obs. 154 1.Obs. 154
2.Group 7 2.Group 7 2.Group 7
3. Inst. 5 3. Inst. 5 3. Inst. 6
4. Hansen J- (0.818) 4. Hansen J-test (0.355) 4. Hansen J-test (0.451)
test
(0.284) 5. AR (2)-test (0.902) 5. AR (2)-test (0.210)
5. AR (2)-test
Figures in parentheses () are estimated p-values. *** ,** and * denotes significant at 1%, 5% and 10% respectively. The Dynamic Panel
GMM estimator of Arellano- Bover/Blundell-Bond (1995/8) are used for the System GMM estimation. The models are based on two steps,
and the estimations are based on xtabond2 simulations by Roodman, 2009. All variables are in natural logarithm.
Hansen J-test for over-identification restriction: H0 = the set of instruments is valid, Arellano-Bond (AR2) test for autocorrelation: H0 =
no autocorrelation. L1. denotes lagged dependent variables

4.3.4: High & Upper-Middle Income Countries’

Results Interpretation and discussion: Table 8 above, presents the result for the one (1) high income
country (Seychelles) and six (6) other upper-middle income countries (Botswana, Equatorial Guinea,
Gabon, Mauritius, Namibia and South Africa) in Sub-Saharan Africa. The high & upper-middle sub-
panel findings follow similar trends in the earlier discussed results for lower-middle- and low-income
panels.
The findings highlight the statistical significance and increasing effects of a unidirectional relationship
from economic growth to energy consumptions confirming the existence of the conservative hypothesis
whilst the study/results failed to establish and the existence of EKC between economic growth and
environmental quality

41
 In model 1(economic growth), both energy consumption and capital stock formation were found
to have a positive and statistically significant effect (at the 1% level) on economic growth for the
restricted model. The magnitude of 0.006 and 0.027 indicates that 1 percent increase in energy
consumption and capital stock increases real GDP per capital by 0.006% and 0.027% respectively for
energy use and gross capital stock formation.
In line with the post-estimation statistical results at the bottom of the models, there is evidence of
consistency in the estimators, and the instruments are valid. Besides, the number of instruments is
smaller than the number of countries in all the models.
In Model 2 (energy consumption), surprisingly, apart from the lagged of the energy consumption
change in the model, no other variable was found to be statistically significant under the restricted model.
Finally, in model 3 (pollution function), it appears only energy consumption has a positive and
statistically significant determinant effects on pollution at the 10% significant levels. With a magnitude
of 0.0500, it indicates that a percentage increase in energy consumption for the high- & middle-income
economies is associated with 0.05% increase in carbon dioxide emissions.

Summary of key findings for the 7 High & Upper-Middle Income Economies within Sub-
Sahara Africa
 In model 1(economic growth), both energy consumption and capital stock formation were found
to have a positive and statistically significant effect (at the 1% level) on economic growth for
the restricted model.

 In Model 2 (energy consumption), surprisingly, apart from the lagged of the energy consumption
change in the model, no other variable was found to be statistically significant under the
restricted model.

 Finally, in model 3 (pollution function), it appears only energy consumption has a positive and
statistically significant determinant effects on pollution at the 10% significant levels.

 The findings highlight the statistical significance and increasing effects of a unidirectional
relationship from economic growth to energy consumptions confirming the existence of the
conservative hypothesis whilst the study/results failed to establish and the existence of EKC
between economic growth and environmental quality

Below is a diagram representing the interactions among GDP, Energy Consumption and Carbon
dioxide emissions for High & Upper-Middle Income Economies of SSA

Energy
Real GDP
Consumption
per capita

CO2
Emissions
42
Figure 3, summary of interaction among the three (3) dependent variables i.e. economic growth, energy consumption and
pollution emissions for high & upper-middle income economies of SSA.

NB: The empirical results of the High & Upper-Middle Income Economies was limited to only the
restricted model because of the following reason(s):
• the two-step system GMM estimation for the unrestricted model were found to be omitting most
of the independent variables because the high possibility of multiple collinearities
• secondly, the Hansen J-test statistics hitting the ‘‘implausible’’ p-value of one(1) mark and,
• thirdly, the number of instrument(s) are larger than the number of groups(countries)

43
 Table 9 (System GMM Simultaneous Equation results for SSA Regional Panel)
MODEL 1 MODEL 2 MODEL 3
(ECONOMIC GROWTH) (ENERGY CONSUMPTION) (POLLUTION EMISSION MODEL)

Restricted
Restricted Unrestricted Unrestricted Restricted Unrestricted
Model
Model Model Model Model Model
Variables Variables Variables
Est. Coef Est. Coef Est. Coef/ Est. Coef/ Est. Coef/ Est. Coef/
(P-Values) (P-Values) (P-Values) (P-Values) (P-Values) (P-Values)
0.978*** 0.815*** 0.002** 0.796*** 0.928*** 0.877***
gdp (L1.) ec (L1.) poll (L1.)
(0.000) (0.000) (0.277) (0.000) (0.000) (0.000)
0.016 0.018 0.089*** 0.024 -0.0001 -0.002
ec gdp gdp
(0.609) (0.463) (0.003) (0.234) (0.754) (0.210)
-0.049 -0.02 -0.501** 0.02 -0.005 -0.002
poll poll ec
(0.531) (0.766) (0.031) (0.254) (0.444) (0.874)
0.153 0.065 0.440* 0.102 0.001 -0.005
k ind urb
(0.5258) (0.725) (0.082) (0.725) (0.725) (0.915)
-- 1.043*** -- -0.075 -- 0.022
kof kof kof
(0.002) (0.478) (0.671)
-- 0.127 -- 0.185 -- 0.028
GE GE GE
(0.460) (0.584) (0.725)
-- -0.247 -- -0.319 -- 0.120*
RL RL RL
(0.540) (0.255) (0.095)
-- -0.161 -- -0.036 -- -0.110 **
CC CC CC
(0.395) (0.781) (0.022)
-- -0.076 -- 0.103 -- 0.067*
PS PS PS
(0.464) (0.310) (0.057)
-- 0.241 -- 0.142 -- -0.059
RQ RQ RQ
(0.555) (0.601) (0.313)
Relevant Statistical Test Relevant Statistical Test Relevant Statistical Test
1. Obs. 924 924 1. Obs. 924 924 1. Obs. 924 924
2. Group 42 42 2. Group 42 42 2. Group 42 42
3.Inst. 6 13 3. Inst. 5 13 3. Inst. 5 12
4.Hansen (0.193) (0.193) 4.Hansen (0.493) (0.102) 4.Hansen (0.466) (0.465)
J-test J-test J-test
5. AR (2)- (0.313) (0.337) 5. AR (2)- (0.951) (0.713) 5. AR (2)- (0.216) (0.191)
test test test

Figures in parentheses () are estimated p-values. *** ,** and * denotes significant at 1%, 5% and 10% respectively. The Dynamic Panel GMM
estimator of Arellano- Bover/Blundell-Bond (1995/8) are used for the System GMM estimation. The models are based on two steps, and the
estimations are based on xtabond2 simulations by Roodman, 2009. All variables are in natural logarithm.
Hansen J-test for over-identification restriction: H0 = the set of instruments is valid, Arellano-Bond (AR2) test for autocorrelation: H0 = no
autocorrelation

44
4.3.5: Regional Panel SSA
Results Interpretation and discussion: Finally, table 9 above, summarizes the results of the regional
panel of the 42 selected economies in SSA.
. For model 1 (economic growth), the results interestingly depict that, the only other statistically
significant explanatory variable (apart from the lagged of real GDP in the regional panel) is the impact
of globalization on economic growth. With a coefficient estimate of 1.043, the implication is that, a
percentage increase in the overall levels of globalization (as defined by market integration, trade
liberalization, economic interdependence and interconnectedness, technological transfer, social
integration etc.), is associated with 1.04% growth in economic performance for the Sub-Saharan African
region at the 1% significance level, holding other variables unchanged.
The Hansen J-test statistics for both the restricted and unrestricted models were found to be valid as we
could not reject the null hypothesis, which means the instruments were valid as well. The AR (2), meant
to check second order serial correlation proves there were no second-order correlation, that is the GMM
estimates were consistent. Additionally, as a rule-of-thumb, the number of instruments were
conspicuously smaller in value than the number of groups (countries) in all the models.
Findings from model 2(energy consumption), indicates that, economic growth and
industrialization have positive and statistically significant effects (at the 1% and the 10%) in determining
energy consumption across the 42 selected economies of SSA. There is evidence of a unidirectional
causality from economic performance to energy demand, thus tending support to the conservative
hypothesis under the Energy-Growth Nexus
The magnitude of 0.089 and 0.440 implies that, 1 percent aggregate increase in economic and industry
growths within the sub-Sahara African region are likely to be associated with approximately 0.09.% and
0.4% increases in demand for energy consumption respectively.
As thus expected, pollution has negative and statistically significant effect on energy consumption across
the sub-Saharan African region.

Finally, in model 3 (Pollution), institutions as measured by government effectiveness, rule of

law, control of corruption, political stability and regulatory quality all these variables combined
appeared to play a significant role as a determinant factor of carbon emission in SSA.
The results of the unrestricted model revealed that both rule of law and political stability have positive
impact whereas corruption has a negative and statistical significance impact on the level of emissions in
the SSA.
Apart from these 3 institutional quality measures, all the other variables were statistically insignificant
on the level of pollution in Sub-Saharan African regions.

45
Summary of key findings for the 42 Selected Economies within Sub-Sahara Africa
 Results for the overall SSA under (economic growth), depicts that the only other statistically
significant explanatory variable (apart from the lagged of real GDP in the regional panel) is the
impact of globalization on economic growth.

 Findings from model 2(energy consumption), indicates that, economic growth and
industrialization have increasing and statistically significant effects (at the 1% and the 10%) in
determining energy consumption across the 42 selected economies of SSA.

 Corruption and regulatory lapses were found to have been contributed to pollution in SSA over
the period

 Globalization was found to be predominant factor in fueling economic growth/performance as

well as playing a critical role in demand for energy and in regulating environmental quality in
SSA.

 Institutional quality measures proved to be very weak and less significant determinants or
influence on the effects of pollution, energy consumption and economic growth

4.5 Concluding Remarks

First, the main findings for both the unrestricted and restricted models confirm the feedback hypothesis
between Economic Growth and Energy Consumption models under the lower-income panels within and
across Sub-Saharan Africa economies. This suggest that, higher economic growth is mutually and
exclusively beneficial to energy consumption and vice-versa. The results are also in agreement with
Arminen and Menegaki (2019) and Adewuyi and Awodumi (2017). It has also found that, the impact of
GDP per capita on energy use in all the four (4) panels were positive and statistically significant
determinant of energy consumption.

Secondly, energy consumption was found to have statistically significant effects on economic growth
but insignificant on pollution in most of the income panels. This implies energy demand in SSA is
directly related to economic growth and less determinant of pollution emissions within and across the
sub-region in Africa.

Thirdly, Globalization was found to be predominant factor in fueling economic growth/performance as

well as playing a critical role in demand for energy and in regulating environmental quality in SSA. This
study revealed that globalization played a more important role within the Energy-Environment-Growth
Nexus ahead of the more traditional factors such as industrialization, gross capital formation and
urbanization.
The empirical results also confirmed that, institutional quality measures proved to be very weak and less
significant determinants or influence on the effects of pollution, energy consumption and economic

46
growth in SSA except in few occasions where rule of law, political stability and level of corruption
happened to be statistically significant in controlling pollution within the overall regional panel of SSA..

Finally, the findings did not produce enough evidence to support the existence of the EKC hypothesis
and as a result, pollution has less significant impact on both economic growth and energy consumption
in all the four panels. The results are consistent with Inglesi-Lotz & Dogan (2018).
Again, the results are consistent with Menegaki et al (2019), where they concluded that, there is
existence of energy-hungry economies that are yet to curb their pollution. This may be due to the low
penetration of renewable energies and energy efficient technologies in these economies

47
 CHAPTER FIVE

SUMMARY, CONCLUSIONS AND POLICY RECOMMENDATION

5.1 Introduction:
This chapter presents summary, conclusions and policy recommendations based on the findings from
the study. Summary and conclusions from the estimated results is presented in the next section whilst
section 5.3 presents policy recommendations on the basis of the findings of this study. Section 5.4
presents limitations of the study and recommendations on areas for further research.

This study sought to analyze the effects of globalization and institutions on energy-environment growth
nexus in Sub-Saharan African economies for a period of 23 years (1995-2017) using a sample of 42
selected countries from the region. The study further sought to investigate the nexus of among energy
use, economic growth and environmental quality by regrouping the countries based on income levels as
high & upper-middle income (7 countries in this category), lower-middle income (14 countries in this
category) and low income (21 countries in this category).

The study employed Simultaneous Equation Modelling within the energy-environment-growth nexus
by using system GMM as the main estimation technique derived from dynamic panel data system.

5.2 Summary of Key Findings:

While the literature on energy-environment-growth nexus for singular countries and for panels has
increased over the past few years, there is yet to be found a study that examines the interactions among
energy demand, economic growth and environmental quality by incorporating globalization and
institutional factors using simultaneous equations model and at the same time going a step further to
examine the relationship for not only the regional panels consisting of 42 countries in SSA but also for
a number of sub-panels. These sub-panels were constructed based on income levels of countries within
SSA.
The main findings from this study are as follows:
➢ Bidirectional causal relationship between economic growth and energy demand. That’s the
empirical results confirmed feedback hypothesis between economic growth and energy
consumption. There was also unidirectional causal relationship from energy consumption to
pollution in all the 2 out of the 3 income panels.

➢ Globalization and some measure of institutional quality (i.e political stability, rule of law as well
as level of corruption) were empirically found to be individually and regionally to have played
key roles in the nexus among energy use, economic growth and pollution across the 42 countries

48
 in sub-Saharan Africa sampled for the study over the period between 1995-2017. It was also
found that globalization happened to be more and statistically significant whereas institutions
were found to be statistically insignificant in most of the sub-panel groupings.

➢ Finally, for both the regional and sub-panels, the empirical results did not learn support to the
existence of Environmental Kuznets Curve (EKC) hypothesis in SSA. That is there is no single
country or sub-panel groupings that has reached a break-even point beyond which the sampled
countries should start caring for the environment and their pollution emissions. This according
to Arminen and Menegaki (2019), may indicates the existence of energy-hungrier economies
that are yet to curb for their air pollution. It can also be due to low penetration of renewable
energies and energy-efficient technologies in SSA.

In conclusion, from this study, the feedback hypothesis becomes evident in conjunction with a non-
confirmed EKC hypothesis in SSA. This means that, for the period and sampled countries, economic
growth is fueled to a large extent by energy demand and vice-versa whereas, the same country has not
reached a breaking point for which energy consumption fueling pollution emissions to a point of
becoming counter-productive to economic growth.

5.3 Policy Recommendation:

The findings have some important policy implications.
➢ First and foremost, will recommend policymaking within and among SSA economies to focus
on decoupling energy from economic growth through development of new technologies and
improvement in human and physical capital. This sentiment was echoed in the study of 67 high
and upper-middle income economies across the globe by Arminen and Menegaki (2019). They
recommended that, policymaking should educate users towards making more by using less.
Whiles some countries can individually achieve this, it remains a daunting task for the Sub-
Saharan African region as a whole to make this a reality considering the economic and
geopolitics in the sub region. That is, it important to consider negative effects on economic
growth in establishing energy conservation policies. These policies will be beneficial for the sub-
Sahara Africa region in terms of saving energy and making efficient use of it as one of the major
sources for goods and services production.

➢ Secondly, this study recommends policymakers in the sampled countries to strengthened

regional corporations to take advantage of the goodies in globalization and the principle of
economic synergies.

49
 ➢ SSA countries needs strong and improve Governance institutions in order to impact positively
on economic growth, energy demand as well as improve environmental quality arising from
energy consumption and economic growth nexus. Strong institutions can go a large extent to
influence economic growth, a sentiment that has been empirically proven by Acemoglu in 2001.

5.4 Limitation of the Study and Areas of further research:

Like many other researches, this study is not spared from its limitations regarding data availability and
methodologies. Also, the study did not test causality among energy demand, economic growth and
environmental quality mainly due to small time scale of the study (23years) since causality test requires
panel time series of at least 30years. Admittedly, this limits the knowledge gain in studying the
relationship among the variables in this study.

A future study can adopt other estimation technique for instance Vector Autocorrelation Regressions
(VARs) to test the causal relationship among the variables within the energy-environment-growth nexus
in SSA

50
 Appendix 1 list of countries
LIST OF 42 COUNTRIES IN SSA
High & Upper-
Lower-Middle Income Panel
Middle Income Low Income Panel (21)
(14)
Panel (7)
Botswana Angola Mauritania Benin Eritrea Malawi
Equatorial
Guinea Cameroun Nigeria Burkina Faso Ethiopia Mali
Gabon Cape Verde Lesotho Burundi Gambia Niger
Congo Sao Tome Central Africa
Mauritius Republic Principe Republic Guinea Rwanda
Guinea- Sierra
Namibia Cote D' Ivoire Senegal Chad Bissau Leone
South Africa Ghana Sudan Djibouti Liberia Togo
Seychelles* Kenya Zambia DR. Congo Madagascar Uganda
* indicates high income country

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