Urbanization, Financial Development, and Sustainable Development in West Africa

Urbanization, Financial Development, and Sustainable Development in West Africa

Samuel Adams (Ghana Institute of Management and Public Administration, Ghana) and Edem Kwame Mensah Klobodu (Ghana Institute of Management and Public Administration, Ghana)
DOI: 10.4018/978-1-5225-2659-9.ch008


This study examines the effect of urbanization and financial development on sustainable development in West Africa over the period 1981-2011. Using seemingly unrelated regression technique to solve our system of equations, the findings of the study show that both urbanization and financial development are positively and significantly related to economic growth and carbon dioxide emissions. A test of equality of parameters, however, suggests that financial development and urbanization are not equal in both equations. This suggests that both urbanization and financial sector liberalization have been pro-growth at the expense of environmental quality. The main implication is that policies must be put in place to control rapid urbanization and liberalization of the economy such that they contribute not just to growth but also environmental sustainability.
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The rate of urbanization has increased rapidly around the world and it has become one of the most prominent features of economic development in the twenty first century. Urbanization shifts production activities formerly undertaken in the home with little or no energy to external manufacturers who do use energy (Jones, 1989). In 2014, more than 54 percent of the world’s population was urbanized and is expected to increase to 66% by 2050, compared with the 1950 rate of 30 percent (United Nations Department of Economic and Social Affairs [UNDESA], 2014). In 2007, for the first time, the global urban population exceeded rural population and this has continued to date. Urbanization in Africa is increasing at a very fast rate (40% based on 2014 data) compared to the most urbanized region (North America) at 82%. By 2050, however, this figure is expected to reach 56%, which represents an annual growth rate of 1.1, surpassed only by that of the Asian region of 1.5%, which far exceeds the developed world urbanization rate of only 0.4%. It can therefore be said that urbanization is a major demographic trend in the world especially in Asia and Africa as it relates to its effect on energy transition, environment and consequently overall development (Ghosh and Kanjilal, 2014). It is important to note that in 2014, however, there were six countries in SSA which had urbanization levels of 20%, including Burundi, Ethiopia, Malawi, Niger, South Sudan and Uganda. The rapid rate of urbanization is attributed mainly to the movement of people from the rural areas to urban centers to seek jobs in both the formal and informal sectors and a better standard of living (Todaro, 1997).

With all the challenges associated with urbanization, the United Nations Fund Population Agency [UNFPA] (2007) report suggests that no country in the modern age has achieved sustained economic growth without contemporaneous urbanization. On one hand, rapid urbanization has been shown to promote the formation of new cities and infrastructural growth if well planned (UNDESA, 2014). Satterthwaite (2016), for example, has argued that people enjoy urban centres because of their vitality and the diverse goods and services they provide.

On the other hand, urbanization is usually associated with increased manufacturing and economic activity resulting in high energy demand and consumption which accelerate the emission of carbon dioxide the main cause of climate change (Zhao and Wang, 2015; Shahbaz et al., 2014; Sadorsky, 2014). The adverse effect of urbanization on climate change is more severe on human health, livelihoods, and agriculture especially in the tropics because of the lax environmental regulations (Intergovernmental Panel on Climate Change [IPCC], 2001; Temurshoev, 2006; Kurane, 2010; Dhillon and von Wuehlisch, 2013). According to the United Nations Environment Programme [UNEP] (2012) report, urban areas, which currently occupy around three per cent of the world’s surface area, were estimated to consume approximately 75 per cent of the natural resources and account for 60-80 per cent of all greenhouse gas emissions. It is not surprising therefore that when the world came together in 2014 at UNEP’s headquarters in Nairobi, it added fresh impetus to efforts to chart a global course that recognizes environmental sustainability as a fundamental element of the post-2015 sustainable development agenda (UNEP, 2014). This shows how environmental sustainability issues have become important both locally and globally in the daily lives of ordinary people (Elliott, Sun & Zhu, 2014).

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