Investigating the effects of environmental tax regulations on industrialization in African countries

Following global warming and climate change issues, environmental policies are receiving renewed interest in the context of the United Nations’ 2030 Agenda for Sustainable Development. Using a panel of 17 African countries over the period 2000–2019 and based on ordinary least squared, Driscoll and Kraay standard error and generalized method of moment, this paper empirically analyses the effect of environmental tax regulation on industrialization. Our results establish a negative and significant effect of environmental regulation through green tax scheme on industrialization. These findings are consistent and robust to the use of an alternative dependent variable (Manufacturing) and other estimation methods. Also, by splitting the sample into monetary zone, the initial result is found to be consistently significant only in Non FCFA zone. Moreover, Quantile analysis reveals some heterogeneity across the industrialization distribution. Indeed, there is a threshold discrepancy between lower (0.25)–median (0,50) income countries in which the effects of environmental tax on industrialization is confirmed to be significantly negative and upper-income countries (0.75) where the effect is positive but not significant. These findings suggest that green tax regulations in our sample of selected African countries, destroy more industries than they could create. We therefore recommend that environmental tax policies should be moderate on African countries at least in the short run.