Financial development, ecological transition, and economic growth in Sub-Saharan African countries: the performing role of the quality of institutions and human capital

Even though the ecological transition is considered the next big challenge for Africa, few studies have examined its scope regardless of the massive financing that is required and the stakes on other sectors. This study analyzes the links between financial development, ecological transition, and economic growth in Sub-Saharan Africa from 1980 to 2019. The Dumitrescu and Hurlin causality tests, Pedroni and Westerlund cointegration, and the Augmented Mean Group algorithm are applied on a sample of forty-eight countries. The findings support that institutional quality and human capital are crucial, but their effects can only be observed in high-income and upper middle-income countries. The level of economic development matters, and there is a threshold beyond which the effects of renewable energies and human capital occur on the performance of the financial system. Trade openness and investments seem also to be positive and significant on ecological transition only in these countries. Furthermore, there is substitutability between non-renewable and renewable energy consumption in these countries, while in lower middle-income and low-income countries, there is complementarity. The study concludes by highlighting key policy recommendations to sustain ecological transition.