Testing the income-finance-trade-environment nexus based on the ecological load capacity factor: Frequency-domain causality evidence from Nigeria

To ensure sustainable development, it is crucial that the consumption of ecological resources remains within their productive capacity. This study aims to support policy formulation by examining the nexus between income, financial development, trade openness, and the ecological load capacity factor in Nigeria from 1970 to 2021. The results of the Bayer-Hanck and autoregressive distributed lag (ARDL) bounds cointegration tests indicate a long-run equilibrium relationship among the variables. Parameter estimations were conducted using the dynamic ordinary least squares (DOLS) and ARDL model estimators. Both the long-run and short-run results indicate that the ecological load capacity factor has a U-shaped curve with income, thereby validating the load capacity curve hypothesis in Nigeria. The estimated threshold turning points of the curve fall within Nigeria's current range of per capita GDP, which indicates that further increases in income will enhance ecological sustainability. Additionally, the ecological load capacity factor exhibits a negative relationship with financial development and trade openness in the long run. The Breitung-Candelon spectral Granger causality tests reveal that, in the long run, unidirectional causality runs from income and trade openness to the ecological load capacity factor, and bidirectional causality exists in the case of financial development. Furthermore, the tests indicate that none of the causal paths are significant for wavelength periods below four years. Therefore, the study recommends implementing medium-to long-term policy strategies to strengthen the ecological resilience base of the economy. •The income-finance-trade-environment nexus•Ecological sustainability based on the load capacity factor•Load capacity curve hypothesis