Effect of financial development, primary and secondary sectors activities on environmental quality in sub–Saharan Africa

Abstract

The study examines the effect of financial development, primary and secondary sectors activities on environmental quality. The study considers three distinct objectives. First, the study examines whether primary sector activities have positive effect on environmental quality in sub-Saharan Africa (SSA). Second, it assesses whether secondary sector activities have positive effect on environmental quality in sub-Saharan Africa, and the third objective investigates whether there is short and long-run bidirectional causal relationship between financial development and environmental quality. A panel of county-level data on twenty (20) selected countries from sub- Saharan Africa are obtained from the World Development Indicators (WDIs). Employing the Generalized Method of Moments (GMM), Random Effect (RE), and Autoregressive Distributed Lag (ARDL) techniques, the study finds that, one, primary sector activities affect environmental quality in sub-Saharan countries negatively. Two, secondary sector activities in sub-Saharan Africa have positive influence on environmental quality. Three, financial development has no influence on environmental quality in short and long-run in SSA. The directional causality suggests that these variables do not have effect on each other in short and long term for countries in sub- Saharan Africa (SSA). However, the coefficients of energy consumption, primary and secondary sector show bidirectional causality for long-run, but primary sector shows one way causality from primary sector to carbon emission in the short run. As a policy recommendation, SSA countries should enact and implement policies that would control and regulate the activities in the primary and secondary sectors, to prevent the use of environmentally unsustainable chemicals in factories and on the earth surface to improve the quality of the environment.