Impact of economic, financial, and institutional factors on CO 2 emissions: Evidence from Sub-Saharan Africa economies Mehdi Abid Innovation Management and Sustainable Development Laboratory, University of Sousse, Sousse 4023, Tunisia article info Article history: Received 9 February 2015 Received in revised form 15 June 2016 Accepted 15 June 2016 Available online 24 June 2016 Jel classification: O13 O50 Q56 Q59 Keywords: Environmental Kuznets Curve (EKC) GMM panel Institutional quality Sub-Saharan Africa economies abstract Given the acceleration of economic changes in Sub-Saharan Africa economies (SSA), a better under- standing of the relationship between economic growth and pollution is essential for policy makers. The purpose of this study is to investigate the impact of economic, financial and institutional developments on CO 2 emissions for 25 SSA countries over the period 1996e2010. We use the reduced form modeling to control unobserved heterogeneity specific to countries and the GMM dynamic panel method to control endogeneity. We found no -evidence in our investigation for the Environmental Kuznets Curve (EKC) hypothesis. Indeed, a monotonically increasing relationship with GDP is found more appropriate for CO 2 emissions. The results confirm that political stability, government effectiveness, democracy, and control of corruption influence negatively CO 2 emissions. On the contrary, regulatory quality and rule of law have a positive effect on CO 2 emissions. The results confirm the importance of institutional frameworks in reducing carbon dioxide emissions since institutional quality not only affects carbon dioxide emissions directly, but also indirectly via economic growth and trade openness. © 2016 Elsevier Ltd. All rights reserved. 1. Introduction In recent years, economists, social scientists, policy makers and other observers have shown considerable interest in the link be- tween institutional quality and environment. The interaction be- tween institutional quality and environment is of intense interest in the context of African economies. Understanding this relationship is crucial in Sub-Saharan Africa (SSA) economies characterized by closed economies, weak environmental regulations, and excessive pollution. The ecological dilemma in SSA economies is associated with the inefficiency and quality of political institutions. It may be due to the poor quality of political institutions that have weakened environmental regulations by introducing a bias, not only in the adoption process but also in the implementation of these regula- tions (Welsch, 2004). Indeed, the system of government can exert direct and indirect effects on the quality of the environment. The rule of law is one of the dimensions of governance, defined in terms of a well func- tioning judicial system, property rights, and so on. The existence of rule of law can minimize the effects of market failures. Olson (1996) shows that the quality of political institutions can facilitate pro- ductive cooperation among market players. Thus, the rule of law becomes an essential element in terms of compliance when it comes to CO 2 emissions. Where rules exist, are well articulated and clear, CO 2 emission control procedures may be easily enforced and firms would not hesitate to comply. Alternatively, loopholes in rules can work in favor of firms for which CO 2 emission compliance may be difficult. What, then, makes the quality of political institutions so important in the relationship between economic growth and environment? The most important reason is that the quality of political institutions can attract Foreign Direct Investments (FDI) in SSA economies, which in turn can accelerate economic growth and the dynamics of environmental performance (Frankel and Romer, 1999). The second reason is that poor quality of political in- stitutions can reduce economic growth by turning a blind eye on the environmental externalities and damage related to the growth process (Welsch, 2004; Lopez and Mitra, 2000). Financial development may also play an important role in improving the environment. Development of the financial sector can facilitate financing investment in environmental projects at E-mail address: abid.mahdi@yahoo.fr. Contents lists available at ScienceDirect Utilities Policy journal homepage: www.elsevier.com/locate/jup http://dx.doi.org/10.1016/j.jup.2016.06.009 0957-1787/© 2016 Elsevier Ltd. All rights reserved. Utilities Policy 41 (2016) 85e94