Environmental Quality and Sectoral Output in Nigeria: Long-Run Elasticity Evidence from Fully Modified and Dynamic Ordinary Least Squares Estimation

This study examines the long-run elasticity effects of environmental quality on agricultural and industrial output in Nigeria for the period 1981-2024, filling a gap in the literature of environmental quality as an outcome of sectors' activity rather than determinant. Eight cointegrated long-run equations are estimated for per capita CO2 emissions and ecological footprint as environmental quality proxies, precipitation and temperature as climate controls, and primarily using Fully Modified OLS (FMOLS), with Dynamic OLS (DOLS) for robustness. Results show sector specific sensitivity: CO2 emissions have a positive and significant long-run impact on agriculture (elasticity close to +0.335), possibly due to ‘carbon fertilisation effects' on Nigeria's predominant C3 crops. In contrast, none of the environmental quality variables is significant for the models of industrial output under FMOLS. Urbanisation has consistent, high negative impacts on agricultural output (elasticities range between -2.49 and -2.66), accounting for both land use change and rural-urban migration, and GDP per capita is the most powerful determinant in both sectors. The results indicate that environmental quality in the Nigerian economy has a measurable and a double-edged nature in the agricultural sector while it is statistically unmeasurable in the industrial sector, which acts as a source of environmental pressure rather than a recipient. Policy implications include sector-oriented management: agricultural investment for climate-smart agriculture and implementing cleaner production technologies in industry and protecting agricultural land. The study offers long-run elasticity estimates treating environmental quality as explanatory rather than an outcome in Nigerian sectoral output models.