The role of innovation and institutional quality for achieving sustainability are important issues tackled by current sustainable development debates, particularly in developing countries. Using a modified environmental Kuznets curve model, the present study improves our understanding of the critical roles of innovation, institutional quality, and entrepreneurship in structural change toward a sustainable future for Africa. Our empirical results show that formal and informal entrepreneurship are conducive to reduced environmental quality and sustainability in 17 African countries however informal entrepreneurship contributes more than formal entrepreneurship to this environmental degradation. The relationship between entrepreneurship and sustainable development turns strongly positive in the presence of high levels of innovation and institutional quality. This study contributes to this emerging research strand by clarifying the conditions that allow African countries to move toward more sustainable economies. Our results highlight the important roles played by innovation and institutions for achieving sustainability in Africa.

Introduction

Despite the promise entrepreneurship offers for sustainability and climate change reduction, its role and nature are uncertain. Work on sustainability within the general entrepreneurship literature is scarce (Hall et al., 2010). Accordingly, although entrepreneurship is recognized as allowing the achievement of a more sustainable economy, there are gaps in our knowledge about the conditions necessary to reach this objective. In this paper, we investigate innovation and institutional quality as necessary conditions for entrepreneurship to create economic growth and advance social and environmental goals. To do so, we apply our methodology to examine the case of African countries. The ability of the African continent to tackle many of the serious challenges it faces, such as climate change, depends strongly on its ability to promote new kinds of entrepreneurs, adopt new technologies, and build institutions to manage those changes. Prior studies show that many of the major killers in Africa are climate sensitive. Without policy intervention, by 2030, climate change will increase the population at risk of malaria in Africa by 170 million (Foresight, 2006), and by the 2080s, will increase the global population vulnerable to dengue fever by 2 billion (Hales et al., 2002). Urban air pollution causes about 1.2 million deaths each year in Africa (WHO, 2009), mainly by increasing mortality from cardiovascular and respiratory diseases. The indirect effects of climate change are also significant. In sub-Saharan Africa where agriculture relies on precipitation, yields are expected to drop by up to 50% by 2020 (Parry et al., 2007), putting millions at risk of a food crisis and malnutrition (World Bank, 2010). Despite growing understanding of the effect of climate change, the region’s capacity to address these risks is weak. We consider 17 African countries during the period 2001–۲۰۱۴ for three main reasons. First, the selected sample of countries includes low income, middle income, and emergent countries – based on level of development. Thus, it accounts for the variety of situations found in Africa. Second, the countries in our sample account for a large share of Africa’s GDP, making our conclusions valid for a large part of Continent.1 Third, Africa is a fast growing continent; its population is expected to more than double over the next 30 years, increasing from 1 billion to 2.3 billion people by 2050. Development in African needs to follow a different path from that pursued in Europe and America. The sustainability of African economies will be a major challenge for future generations across the world. Our paper makes three substantive contributions to the literature. First, it incorporates entrepreneurship activity into the standard environmental Kuznets curve (EKC)2 model and demonstrates that environmental quality in Africa is affected negatively by both forms of entrepreneurs, i.e. survival entrepreneurs, and innovative Schumpeterian entrepreneurs. Our paper takes into account various forms of entrepreneurship (formal and informal) given the fact that the size of the informal sector is important in Africa and more than one-third of small businesses are not legally registered. Second, it builds a modified EKC model to examine the contribution of entrepreneurship to sustainable development. Third, it appears that while entrepreneurship is currently being discussed as an important channel for fostering sustainability, there is much uncertainty regarding the conditions needed to move toward sustainable products and services. This study contributes by incorporating innovation and institutional quality as conditional variables to move toward sustainable entrepreneurship. The remainder of the paper is organized as follows. Section 2 reviews the relevant literature; Section 3 describes the methodological approach; Section 4 presents and discusses the empirical results; and Section 5 discusses the study’s main conclusions and policy implications.