Responding to the environmental effects of remittances and trade liberalization in net-importing economies: the role of renewable energy in Sub-Saharan Africa

Little is currently known about how policy choices that seek to bridge the gap between low production capacity and growing consumption demands in developing economies impact the environment. To address this research gap, a quantile-based model is used to examine the impact of three policy-relevant variables on carbon dioxide (CO2) emissions: international remittance inflows, trade liberalization, and renewable energy consumption. Territorial-based CO2 emissions are used to explain the environmental effects of the variables when emissions are calculated solely on the basis of domestic production capacity. To consider if trade-induced consumption demands provide a better measure for assessing the environmental effects of the variable, consumption-based CO2 emissions are used. The study focused on Sub-Saharan African countries with zero or net positive CO2 emissions from trade. The results show, among other things, that remittances and trade liberalization increase CO2 emissions irrespective of the accounting method. Trade, in particular, has a stronger effect through import-induced consumption activities. However, the effect is statistically insignificant for the lower quantile countries and statistically significant for the middle and upper quantile countries. Harnessing the potential of renewable energy to reduce CO2 emissions should thus be a priority for policymakers in net-importing developing economies if production and consumption activities are to be created in less carbon-intensive ways.