Natural Resource Windfalls in the Face of Climate Change: Insights From the Big Five African Economies

Abstract

Emerging climate risks provide undeniable evidence that Africa’s fragile resource systems are highly susceptible to climatic variability. Thus, the impact of climate change on natural resource rents is examined with a focus on the big five African economies. Using Pooled Mean Group (PMG) Estimator and Panel Causality Test, the study covers the period 1990–2023. It is empirically confirmed that climate change negatively impacts natural resource rents as findings depict that a rise in the levels of carbon emissions would result in reduced resource rents in the long run. This validates the assumption that the effects of changing climate conditions could be harmful to resource availability and environmental sustainability in cities and communities, suggesting a link with Sustainable Development Goal 11 (SDG 11: Sustainable Cities and Communities). Regarding heterogeneous estimates obtained, it is shown that South Africa and Egypt reflect better outcomes compared to Algeria, Nigeria, and Ethiopia. It is, therefore, emphasized that differences in the quality of policy frameworks could be responsible for the empirical outcomes. Based on the causality results, a bidirectional association is established between carbon emissions and natural resource rents, indicating that climate change and natural resource rents could influence each other. Hence, it is suggested that building low-carbon infrastructure, maintaining land degradation neutrality and prioritizing sustainable ecosystem management are essential for achieving desired outcomes.