Decarbonization in Sub-Saharan Africa: Exploring the Interaction Between Green Finance and Forest Depletion

The exploitation of forest resources for human activities significantly contributes to forest degradation and increases carbon emissions. Forests play a crucial role in capturing the carbon released into the atmosphere, thereby reducing air pollution. However, when forests are degraded, leading to higher carbon emissions, countries must implement reforestation programs through afforestation, reforestation, and agroforestry. Green finance, therefore, has become a central means for these countries to carry out such initiatives to sequester carbon. The objective of this study is to analyze the role of green finance in moderating the effect of deforestation on decarbonization in sub-Saharan Africa. Using data collected from 44 sub-Saharan countries and the FMOLS and System GMM methods, the outcomes suggest that green finance mitigates the impact of deforestation on carbon emissions. Consequently, policies aimed at establishing monitoring bodies could enhance the effective utilization of these funds for decarbonization purposes.