Coal Consumption and Environmental Sustainability in South Africa: The role of Financial Development and Globalization

Abstract

This paper aims to investigate coal consumption and environmental sustainability in South Africa by examining the role of financial development and globalization by using a dataset covering the period from 1980 to 2017. The study utilized the Auto-regressive Distributed Lag Model (ARDL) approach in addition to the Bayer and Hank combined co-integration, fully modified Ordinary least squares (FMOLS), and Dynamic ordinary least Squares (DOLS). The study further utilized the frequency domain causality test to capture the causal linkage between the series. The advantage of the frequency domain causality is that it can capture causal linkages between series at different periods. The Bayer and Hanck co-integration and ARDL bounds tests reveal co-integration among the series. The empirical findings based on the ARDL long-run estimation reveal that a 1% increase in coal consumption increases environmental degradation by 1.077%, while a 1% increase in financial development decreases the environmental degradation by 0.973%. Furthermore, a 1% increase in economic growth decreases environmental quality by 1.449%. The outcomes of the FMOLS and DOLS approaches also provide supportive evidence for the ARDL long-run results. Furthermore, the results of the frequency domain causality test reveal that at a significance level of 1%, coal consumption Granger causes CO2 emissions at different frequencies, while financial development Granger causes CO2 emissions in the long run and short run at a significance level of 10%. In terms of policy suggestions, South Africa should embrace policies that encourage energy consumers to shift toward renewable energy. Furthermore, financial reforms should be implemented to curb environmental degradation.