Industrial growth and emissions of CO2 in Ghana: The role of financial development and fossil fuel consumption

Abstract

The rapid rise in greenhouse gas emissions have become a global concern catching the attention of policy makers and researchers all over the world. Fossil fuel combustion has been named as the major source of greenhouse gas emissions, meanwhile, studies focusing on fossil fuel impact on CO2 emissions are rare for developing countries including Ghana. This study employed the ARDL procedure with structural breaks and the Bayer–Hanck joint cointegration approach to examine the validity of the EKC hypothesis in the dynamic linkage between industrial growth and emissions of carbon dioxide (CO2) in Ghana, capturing the role of fossil fuel consumption and financial development. The variables are found to be cointegrated and both the short-run and the long-run parameters showed evidence of a U-shaped relationship between industrial growth and CO2 emissions which was further confirmed by the Lind and Mehlum U-test. The short-run causality revealed a uni-directional causality running from fossil fuel consumption to emissions of CO2. For policy purposes, the study advocates for efficient and low carbon emission technologies. JEL classification: Q43, Q53, Q54, Q56, Keywords: ARDL cointegration, EKC hypothesis, Fossil fuel, Carbon emission, Ghana