Pathways to environmental quality: Assessing the roles of government expenditure, money supply and trade openness in Nigeria

Abstract

This study examines the dynamic interplay between government expenditure, money supply, and trade openness and their combined effects on environmental quality in Nigeria from 1986 to 2025. Employing annual time series data and the Johansen cointegration and Vector Error Correction Model (VECM) techniques, the analysis captures both the short- and long-run relationships among the variables. The results indicate a stable long-run equilibrium, wherein fiscal policy exerts a positive influence on environmental quality through green-oriented public investment and sustainable expenditure patterns. Conversely, monetary expansion contributes to environmental degradation by increasing liquidity and promoting carbon-intensive production. Trade openness, although beneficial for economic integration, is found to deteriorate environmental quality, reflecting the pollution haven effect under weak regulatory enforcement. Economic growth supports the Environmental Kuznets Curve (EKC) hypothesis, implying that environmental quality improves once income surpasses a certain threshold. The study concludes that achieving environmental sustainability in Nigeria requires the integration of macroeconomic stabilization policies with climate-responsive frameworks. It recommends adopting green fiscal and monetary instruments, strengthening climate-conscious financial regulation, and implementing environmentally responsible trade reforms to enhance resilience, foster private-sector participation, and align economic growth with low-carbon development pathways.