The role of financial develepment, human capital and economic growth on envirtonmental sustainability: An empirical analysis of Cameroon

In this dissertation, we noted that the use of economic growth as a policy tool to tackle poverty in developing countries has remained a challenge, as economic growth often emerges with the emissions of greenhouse gases that are harmful to the environment. Although the trade-off between economic growth and environmental pollution is contextual, both human capital and financial development are used to achieve the sutainable development goal 1 (no poverty), sustainable development goal 2 (zero hunger), sustainable development goal 4 (quality education), sustainable development goal 6 (clean water and sanitation), sustainable development goal 8 (decent work and economic growth), and the sustainable development goal 13 (climate action). The analysis section of this dissertation is divided into four parts. The first assesses the integrating properties of the variables (i.e conventional unit root and the structural breaks). By employing the Cameroon time series data covering the period 1980 to 2016, it is found that the variables are stationary at the first difference I (1). Meanwhile, the structural break test further discloses two break points in Cameroon's time-series data, notably during (a) Lake Nyos disaster and the petroleum crisis between 1985 to 1993 period, (b) the 1994 to 2004 local currency devaluation and the post-electoral crisis; and (c) the 2008 to 2009 financial crisis that affected many countries in the world, including Cameroon. In the second part, we examine the cointegration relationship between financial development, human capital, economic growth, foreign direct investment, energy consumption and environmental quality using the author regressive distributive lagged (ARDL) bounds test. Besides, the ARDL bounds test was further grouped into two categoryies: model one and model two. In model one, the ARDL bounds test was conducted without considering the dummy variables. But in model two, the dummy variables were introduced to capture the effects of the structural breaks and this greatly helps in improving the results. From the ARDL bounds tests, it is revealed that the calculated F-statistics are higher than the lower and the upper bound, implying that a long-run relationship exists between the variables. Specifically, a 1% increase in foreign direct investment (FDI) and financial development raise carbon dioxide emissions by 0.01% and 1.34% respectively. Meanwhile, a 1% increase in economic growth, human capital, and energy consumption reduces CO2 emissions by 1.09 %, 3.71%, and 0.99% correspondingly. The positive relationship between FDI and environmental quality pinpoints that the pollution havens hypothesis is relevant in Cameroon. Whilst the negative association among economic growth and environmental quality indicates the significance of the environmental Kuznets curve (ECK) hypothesis in this country. It is also noted that human capital (education) is an important variable that acts in generating environmental sustainability in Cameroon. In the third part, we study the causality effects of financial development, human capital, economic growth, foreign direct investment, energy consumption, and environmental quality. This was tested by engaging the Granger causality and the Toda-Yamamoto (TY) causality tests. The result from the Granger causality demonstrates that unidirectional causality runs from foreign direct investment to carbon dioxide emissions, financial development, and economic growth, and from economic growth to carbon dioxide emissions. However, it was established that there exist no causal effects between financial development and carbon dioxide emissions, human capital and carbon dioxide emissions, and between energy consumption and carbon dioxide emissions in the short run. However, with the introduction of the Toda-Yamamoto causality test, we obtained better results, since it is compatible with models of small samples. Correspondingly, the Toda-Yamamoto test indicates that unidirectional causalities run from carbon dioxide to financial development, economic growth, and foreign direct investment and from economic growth to human capital. Similarly, bidirectional causality runs amid human capital and energy consumption, between human and financial development, and lastly, between financial development and foreign direct investment. The coefficient of the error correction term (ECT) was found to be statistically significant at a 5% level, negative sign. This thus supports the existence of long-run causality between the variables. Meanwhile, the value of the error correction term of about 94.8%, designates that any disequilibrium of carbon dioxide emissions in the previous year will be corrected in the current year. The fourth part consists of testing the model stability and fitness. This is examined by studying the cumulative sum (CUSUM), the cumulative sum of squares (CUSUMSQ), the serial correlation, the normality, and the heteroskedasticity tests. The results of the CUSUM test indicate that the model is stable at a 5% level of significance. Likewise, the fitness tests pinpoint that the model is free from any heteroscedasticity, normality, and serial correlation problems. This, therefore, implies that the results presented in this dissertation are not biased estimates. Above all, the results from the summary statistics, further indicate that all the variables are compatible as indicated by the mean values. It was noted that economic growth exhibits the highest mean value, followed by human capital and financial development. Energy consumption and carbon dioxide emissions had negative mean values, signifying that energy resources are not fully utilized in Cameroon. Regarding the standard deviation, a significant variation was obtained, indicating that the results from this model are not biased estimates. In term of chapter, the dissertation covers five Chapters. In chapter one, we present the background of the study, the problem statement, the study purpose, the scope of the study, and finally, the innovative aspect. Chapter two encompasses the economy of the whole CEMAC countries. This chapter helps to gauge the economic performances of this regional body, the economic structures in various CEMAC countries, the financial indicators, the social indicators, and lastly the environmental variables. In chapter two, we present the theoretical and empirical reviews. This chapter aids to identify the literature gaps after reviewing past studies that examine the effects of financial development, human capital, economic growth, foreign direct investment, and energy consumption on environmental quality. Chapter four covers the methodology. Here, the various variables, model specification, the estimation techniques are clearly stated. Meanwhile, in the final chapter, we established the empirical results and the discussions of the various tests that are conducted in this dissertation. In the last section, we present the conclusions, recommendations, the direction of future research, and lastly the limitations of this study. Lastly, human capital was found as the variable that contributes the most in improving the quality of the environment in Cameroon. In this regard, it is therefore recommended that the government should strive to implement policies that will raise the level of human capital development by encouraging everyone to go to school, including the women. Meanwhile, the relevance of the pollution havens hypothesis as the findings demonstrate, calls for the government's attention to develop policies that attract environmentally friendly products to Cameroon. Moreover, it was hypothesized that energy consumption and carbon dioxide emissions are positively related. But the findings of this study demonstrates result that is contrary to the hypothesized relationship between the two variables. However, the inverse association that we found between energy consumption and the dependent variable is probably because of the strong conservation policies that the government of Cameroon has initiated to mitigate the spread of pollution. These majors include, the sensitization of people about the conservation of energy, the utilization of more renewable sources of energy, the practice of afforestation and the discouragement of deforestation.