Resource-backed loans and ecological efficiency of human development: Evidence from African countries

Abstract

The main challenge for most African countries is to find an alternative source of funding that can meet the needs of present generation without jeopardizing the needs of the future generations. Indeed, budgetary pressures are as defaults and economic recessions, combined with difficulties in accessing financial markets, which are often triggered by a series of sovereign debt restructurings and defaults, and have led some resource-rich African countries to turn to resource-backed loans to finance infrastructure projects to achieve long-term sustainable development goals. In this paper, we use the entropy balancing method to test whether resource-backed loans have a causal impact on the ecological efficiency of human development of African economies. Across a battery of robustness checks, the estimation results indicate that resource-backed loans have a positive and statistically significant impact on ecological efficiency of human development. Nonetheless, when resource-backed loans are disaggregated to run the regressions, we find that oil-backed loans and minerals resource-backed loans increase ecological efficiency of human development while cocoa and tobacco resource-backed loans are negatively associated to ecological efficiency of human development. The main findings of the study suggest that resource-backed loans agreements in general, and cocoa and tobacco in particular, should include strict clean development provisions and the implementation of actions to mitigate the negative environmental impact of these loans for borrowing countries.