The Role of Environmental Quality and Institutions in Agricultural Sector: Evidence from Sub-Saharan African Countries

Abstract Despite heavily relying on and employing more than half of its total labour force in the agricultural sector, Sub-Saharan Africa (SSA) experiences the highest levels of food insecurity and the highest undernourished children in the world, with rising levels of hunger. The purpose of this paper was to investigate the agricultural sector effects of environmental and institutional quality in SSA from 2002 to 2021. Data was analyzed using the Fixed Effects estimator with Driscoll Kraay Standard Error approach. The key findings reveal that ceteris paribus a 1 % increase in CO2 emissions associated with 0.366 %, 0.244 % and 0.198 % reduction in agriculture value added (AVA) in the low-income (LIC), lower-middle-income (LMI) and upper-middle-income (UMI) categories respectively. The corresponding reactions from a 1 % increase in energy intensity are 0.556 %, 0.174 % and 0.37 % for the respective income groups. A disaggregation of the agricultural production showed that the crop, food and livestock production models suffer differentially from increases in these environmental quality indicators. On the other hand, a 1-unit increase in institutional quality corresponds to increases of about 5.1 %, 7.8 % and 13.8 % in AVA in LIC, LMI and UMI respectively. In terms of size, CO2 emissions impact largest the LIC, whereas energy intensity and institutional quality affect largely the UMI group, considering all the agricultural indicators. While higher energy intensity worsens the adverse impact of carbon emissions on agriculture, stronger institutional quality weakens it. Policies to curb carbon emissions, reduce energy intensity, and strengthen institutional quality would benefit AVA, FPI, CPI and LPI.