ECONOMIC GROWTH AND ENVIRONMENT: A CASE OF SUB-SAHARAN AFRICAN COUNTRIES USING PANEL VAR APPROACH

Abstract

Sustaining economic growth without affecting the environment has continued to be a big concern. The world is working towards sustainable development, a development that doesn’t neglect the environment, providing a need for current generation without risking the ability of the future generation. The aim of this paper was to assess the relationship between economic growth and the environment, for selected Sub-Saharan African countries. Data for the study were obtained from World Bank for ten Sub-Saharan African countries, for the last 29 years starting from 1990. EKC was used to examine the relationship between CO2 emission and economic growth, and Panel VAR was also used to see the causal relationship between economic growth, CO2 emission and other variables. Results of the study showed that the trend of CO2 emission in the region is increasing, the EKC is not achieved for Ethiopia, but for those selected SSA countries validates jointly. The co-integration result shows there is no long-run relationship between the variables. The first order lag Penal VAR model was selected and Real GDP and Gross Capital formation Granger – causes CO2 emission. The endogenous variables in the model are more explained by their previous shock than other endogenous variables. Response of CO2 emission a shock to real GDP is positive and decreasing until become stable quickly. the result of IRF shows that there is shock on the short run, for most of them it back to stable state after some while. To reduce the pollution, it requires a very careful set of policies and willingness to produce goods and services in most environmentally friendly way, government bodies and other concerned organizations should work on balancing economic growth and the environmental pollution.