Natural resource rent, financial globalization, and environmental degradation: Evidence from a resource rich country

Abstract

This paper examines the role of financial globalization and natural resource rents on carbon emissions in the case of Nigeria from 1970 to 2020 using Breitung-Candelin Spectral Granger-causality and wavelet coherence analysis. The spectral analysis decomposes variability in a time series into its periodic components, which is preferable for series that are short-spanned, nonlinear, or are characterized by seasonal and economic episodes, while the wavelet coherence analysis could produce localized decompositions both in time and frequency domains. Using these techniques, we find a one-way causal effect running from financial globalization and natural resource rents to carbon emissions within the specified scale and time. Financial globalization and natural resource rents are useful for predicting environmental degradation in Nigeria. Thus, policymakers should factor in financial globalization and natural resource rent when formulating environmental policies to mitigate climate change effect for the immediate and future generations. Financial penetration should be channeled toward green investment. The deposit money banks should provide and prioritize credit only to firms and individuals that consider investing in modern and clean technologies, while the policy on exploration and exploitation of natural resources should review to attract foreign investors that would improve the existing technologies or bring in energy-efficient and energy-saving ones.