Dynamic ARDL Simulations Effects of Fiscal Decentralization, Green Technological Innovation, Trade Openness, and Institutional Quality on Environmental Sustainability: Evidence from South Africa

Abstract

Fiscal decentralization and green innovation are important to a country’s economic progress, but the externalities of increased pollution as a result of a rise in the energy used and economic growth must not be overlooked. The destruction of the environment presents a serious threat to human existence. South Africa, like several nations, has been working on reducing its dependence on fossil fuels such as coal by utilizing modern energy-efficient technologies that allow to establish a more carbon-neutral economy. Several attempts have been made to identify the major sources of environmental deterioration. Within the Stochastic Impacts by Regression on Population, Affluence, and Technology (STIRPAT) framework from 1960 to 2020, this study aims to check empirically the effect of fiscal decentralization (FD), green technological innovation (GI), trade openness (OPEN), population size (POP), per capita GDP (GDP), per capita GDP squared (GDP2), institutional quality (INS), and energy consumption (EC) on carbon emissions (CO2) in South Africa, as given its fast economic progress the country is facing problems with CO2 emission. The recently developed novel dynamic autoregressive distributed lag (ARDL)-simulations framework has been used. The outcomes of the analysis indicate that (i) FD, GI, and INS improve environmental sustainability in both the short and long run; (ii) OPEN deteriorates environmental quality in the long run, although it is environmentally friendly in the short run; (iii) per capita GDP increases CO2 emissions, whereas its square contributes to lower it, thus validating the presence of an environmental Kuznets curve (EKC) hypothesis; (iii) POP and EC contribute to environmental deterioration in both the short and long run; and (iv) FD, GI, OPEN, POP, GDP, GDP2, INS, and EC Granger cause CO2 in the medium, long, and short run, suggesting that these variables are important to influence environmental sustainability. In light of our empirical evidence, this paper suggests that the international teamwork necessary to lessen carbon emissions is immensely critical to solve the growing trans-boundary environmental decay and other associated spillover consequences. Moreover, it is important to explain responsibilities at different tiers of government to effectively meet the objectives of low CO2 emissions and energy-saving fiscal expenditure functions.