Economic Tertiarization and Environmental Quality in Togo: An Empirical Investigation Using Vector Error Correction Models (VECM) and Dynamic Ordinary Least Squares (DOLS)

Abstract

Given the importance of environmental issues and the sustainability of economic growth, reconciling these two issues is one of the major challenges facing governments. Many developing countries, including Togo, have undergone a structural transformation that has been felt most acutely in the service sector. This research falls within the same framework, by analyzing the relationship between economic tertiarization and environmental quality in Togo. More specifically, this research assesses the impact of the value added of tertiary activities on environmental degradation resulting from economic activities. Using a vector error correction model and dynamic ordinary least squares estimation, this paper investigates the effects of service sector contributions to gross domestic product on environmental quality in Togo over the period 1980-2022. The results reveal that a 1% increase in the value added of the services sector to GDP reduces carbon dioxide emissions by 0.59% over the long term. Thus, economic growth reduces carbon dioxide emissions by 0.25% in the long term, with no significant impact in the short term. These results are a wake-up call to Togo’s political authorities on the importance of promoting sustainable practices within the service sector to achieve long-term environmental objectives while not leaving other sectors behind.