On the environmental sustainability effects of sovereign debt : evaluating the environmental impacts of resource-backed loans in African Countries

Abstract

This study employs the entropy balancing method to investigate the causal impact of resource-backed loans on the environmental sustainability of African countries. Robustness tests reveal that resource-backed loans exert a negative and statistically significant effect on the environmental sustainability index. Disaggregating the loans, the analysis shows that oil- and mineral-backed loans significantly reduce environmental sustainability, while cocoa- and tobacco-backed loans have no statistically significant impact. The findings underscore the need for resource-backed lending agreements, particularly those involving oil and minerals, to incorporate stringent provisions financing biodiversity conservation and mitigating adverse environmental impacts. These measures are crucial for promoting sustainable development in borrowing countries.