Income inequality and carbon dioxide (CO2) in sub-Saharan Africa countries: the moderating role of financial inclusion and institutional quality

The study was motivated by increased carbon emissions and high inequality in many of the countries in sub-Saharan Africa (SSA). In this study, we examine whether income inequality in SSA countries increases CO2 emissions, and also investigate empirically whether financial inclusion and institutional quality moderate this connection from the period 2000–2018. For the purpose of examining these links, two proxies for financial inclusion (FI) and an index of institutional quality (IQX) are used. Advanced econometric techniques such as cross-sectional augmented autoregressive distributed lags (CS-ARDL) and augmented mean group (AMG) techniques were used to account for robust, cross-sectional dependence and heterogeneity. The CD-ARDL results demonstrate that the inequalities in the short and long runs are essentially positive, indicating that environmental pollution would rise progressively as the wealth difference widened in the 32 selected SSA nations. The square of income disparity has a negative impact on CO2 emissions, albeit the magnitude varies in the short and long run. Income disparity continues to have a positive impact on CO2 emissions after interacting with financial inclusion in both the short and long run. The results of the interaction term (INEQ*IQX) show that institutional quality has a considerable negative effect on CO2, implying that institutional quality has a major impact on the inequality-CO2 nexus. The robustness of the models is tested using AMG, and the results are congruent with the CS-ARDL estimated results. Hence, based on our findings, we recommend several measures to reduce CO2 emissions in SSA countries.