Globalization, energy use, and environmental degradation in South Africa: Startling empirical evidence from the Maki-cointegration test

Abstract

This study investigates whether the dynamic effects of globalization and energy consumption can lead to a significant rise in South Africa's environmental degradation. Specifically, the study investigates which among the combinations of the variable of globalization, energy use, and economic growth is possessive with the dynamics of influencing upward or downward movement of South Africa's environmental degradation and hence Environmental Kuznets Curve (EKC). To ensure robust and parsimonious result, time series data from 1971 to 2014 was used. The structural breaks from the Maki cointegration tests were incorporated in the FMOLS and CRR models for the dynamic long-run estimates while the short-run estimates were obtained from the conditional Error Correction Model (ECM) regression. The direction of causality was investigated using the Toda-Yamamoto causality test. The finding from this test was validated using the innovation accounting analysis and the impulse response function. The results established the existence of an upward EKC dynamics, which bear a major linkage from the excessive fossil fuel energy use in South Africa. While globalization, was detected to condense environmental degradation in the short-run irrespective of the degree of economic growth attained by the country. Complementing this finding was the Toda-Yamamoto test, which established the existence of a one-way causality running from energy use to environmental degradation and again, a two-way causality between economic growth and globalization. The innovation accounting test revealed that 7.96% and 0.80% of energy use and globalization could lead to corresponding environmental degradation of 72.52% and 1.39% respectively. The study, therefore, advocates the need for conservative energy policies and pollution-free energy mix. How to achieve these are carefully outlined by the present study.

Keywords: EKC hypothesis; Energy use; Environmental degradation; Maki cointegration; Toda-yamamoto causality.