The effect of natural resources extraction and public debt on environmental sustainability

Abstract

PurposeThe rise in public debt and the increased extraction of natural resources in Ghana at a time that environmental degradation is escalating, especially with carbon dioxide emission, is worrying. This seems to cast doubt on the country's ability to meet the goals of the Paris agreement for climate change and ensuring sustainable development. Consequently, in this study, the effect of natural resources extraction and government debt on carbon dioxide emission is investigated.Design/methodology/approachThe Environmental Kuznets Curve (EKC) hypothesis was adopted for this study. The Fully Modified Ordinary Least Square Model was used for assessing the data. An annual data from 1971 to 2018 was used for the analysis.FindingsThe long-run results based on the Fully Modified Ordinary Least Square analysis reveal that natural resources extraction increases carbon dioxide emissions. Moreover, the joint effect of post-oil production in commercial quantities and natural resources rent increases carbon dioxide emission. Further, the findings document that the initial stage of government debt improves environmental quality up to a point, beyond which an increase in debt hurts the environment. On the environmental degrading effect of economic growth, the findings validate the Environmental Kuznets Curve hypothesis. It is also observed that urbanization degrades environmental quality.Practical implicationsThe study offers appropriate recommendations policymakers need to embrace towards the attainment of lower carbon emissions from the loans and natural resources rent to achieve environmental sustainability.Originality/valueThe effect of debt on carbon dioxide emission is assessed for the Ghanaian economy. It also contributes to studies on the natural resources-carbon emission nexus.