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Environmental Performance in the West African Economy: MM-Quantile and 2SLS Approach

Musibau, Hammed and Yanotti, Maria Belen and Nepal, Rabindra and Vespignani, Joaquin (2021): Environmental Performance in the West African Economy: MM-Quantile and 2SLS Approach.

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Abstract

The 2019 World Bank report on West Africa's coast indicates that over $3.8 billion is lost annually due to environmental issues, like erosion, flooding, and pollution. In this paper, the newly introduced environmental performance index (EPI) is incorporated into the neoclassical growth model to empirically address the impact of environmental performance on economic growth for the Economic Community of West African States (ECOWAS). Using the novel Method of Moments-Quantile Regression methodology and 2SLS models, the empirical investigation finds a positive relationship between environmental performance and economic growth across quantiles for ECOWAS. Empirical results provide evidence supporting bidirectional relationships running from environmental performance to economic growth; from government size to economic growth; and from trade openness to economic growth across all quantiles. Results show that environmental performance, government size, labour, and capital stock have a positive impact on West African Economic Growth, while trade openness decreases economic growth. We find a 48% optimal threshold of environmental performance index (EPI) on economic Growth for ECOWAS countries. Based on the findings, policies to encourage improved environmental performance above the threshold estimated will go a long way to enhance West African economies.

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