The role of bank financing in economic growth and environmental outcomes of sub-Saharan Africa: evidence from novel quantile regression and panel vector autoregressive models

In sub-Saharan Africa, economic expansion and its environmental implications have become major problems. The banking system has been described as a mechanism for decoupling economic expansion from environmental implications. However, the function of bank financing in the growth-environmental consequences in SSA remains undeveloped. This study investigated the role of bank financing in economic growth and environmental outcomes in SSA over the period 1990-2018. We implemented the novel panel quantile regression and panel vector autoregressive models in a generalized method of moments' framework to investigate the influence of bank financing on economic growth and carbon emissions, and the moderating effect of bank financing in growth-environmental consequences among the four regional economies in SSA. The empirical results revealed that bank financing (1) increases economic growth and carbon emissions across quantiles; (2) positively influences economic growth and carbon emissions of East and Central African regions but negatively influences economic growth and carbon emissions of the West African region; (3) mitigates growth-emissions outcomes of low-emission countries but worsens growth-emissions outcomes of median and high emission countries; and (4) worsens growth-emissions outcomes of East and Central African regions but mitigates growth-emissions outcomes of Southern and West African sub-regions. The variance decomposition and impulse response results discovered that the role of bank financing in growth-environmental challenges varies in terms of magnitude and elasticities across the sub-regions over the sampled period. The study also revealed mixed findings regarding the existence of the EKC hypothesis for the sub-regional economies in SSA.