Foreign Direct Investment, Economic Growth and Environmental Quality in Sub- Saharan Africa: A Dynamic Model Analysis
DOI:
https://doi.org/10.61538/ajer.v5i1.435Abstract
The paper investigates the dynamic interactions among the inflow of foreign direct investment, economic growth and environmental quality of the countries in Sub-Saharan Africa (SSA). It seeks to examine the environmental implications of the inflow of foreign direct investment and economic growth of the countries in the sub-region. The dynamic interaction was examined through Panel Vector Autoregressive (PVAR) and Panel Vector Error Correction (PVEC) methodologies on a sample of thirty-three SSA countries. Panel unit root test and panel cointegration test were conducted to determine the degree of stationarity of the variables and long–run relationship among our variables of interest respectively. The results of the empirical analysis showed that dynamic interactions exist among foreign direct investment, economic growth and environmental quality, with the magnitude of influence on one another between 13.1% and 32.8%. The paper suggests that governments of Sub–Saharan African countries should strike a balance between investment friendly policies and environmental protection policies such that foreign direct investment that will be attracted into the region will be those that will improve the environmental quality of the countries in the region.References
Adebiyi S. G. (2007). Empirical Tests and Policy Analysis of Economic Development. International Journal of Social Sciences, 7(4), 32-39.
Adrangi, B., and Allender M. (1998). Budget and Stock Prices -International Evidence. Journal of Economics and Finance. 9(22), 57 – 66.
Agras, J. and Chapman, D. (1999). A Dynamic Approach to the Environmental Kuznets Curve Hypothesis. Ecological Economics, 28(2), 267-277
Ajide, K.B. and Oyinlola, M.A. (2010). Does the level of Economic Growth influence Environmental Quality in Nigeria: A Test of Environmental Kuznets Curve (EKC) Hypothesis? Pakistan Journal of Social Sciences, 7(4), 325-329.
Akaike, H.(1976). Canonical Correlation Analysis of Time Series and The Use of An Information criterion, cited in Systems Identification, ed. R. K. Mehra & D. G. Lainiotie, 27-96. New York: Academic Press.
Akinlo, A.E. (2004). Foreign Direct Investment and Growth in Nigeria: An Empirical Investigation. Journal of Policy modeling, Vol 26, pp 627-639.
Apergis, N and Payne, J. E. (2010). Energy Consumption and Economic Growth in South America: Evidence from a Panel Error Correction Model. Energy Economics, 32, 14211426.
Ayanwale, A.B. (2007). FDI and Economic Growth ; Evidence from Nigeria. African Economic research consortium, Nairobi. AERC Research Paper 165.
Beak, J. and Koo, W.W. (2009). A dynamic approach to FDI-environment nexus: The case of China and India. Journal of International Economics Studies, 13: 1598-2769.
Blomstrom, Magnus, Robert E. Lipsey, and Mrio Zejan (1994). What Explains the Growth of Developing Countries? In Baumol, William J.Nelson, Richard R. and Wolff, Edward N. (eds.),Convergence of productivity, Oxford University Press, New York; 243-256
Boqiong Yang and Jianguo Chen (2010). An Empirical Model of the Environmental Effect of FDI in Host Countries: Analysis Based on Chinese Panel Data. China Economic Review, Vol. 17(4), pp. 383-394.
Buckley, P.J., Clegg, J. and Wang, C. (2002). The Impact of Inward FDI on The Performance of Chinese Manufacturing Firms. Journal of International Business Studies, 33(4): 637655.
Choi, E, Heshmati A., and Cho Y.(2010). An Empirical Study of the Relationships Between CO2 Emissions, Economic Growth and Openness. The Institute for the Study of Labor (IZA), Discussion Paper No. 5304
Dees, S. (1998) Foreign Direct Investment in China: Determinants and Effects. Economics of Planning, 31: 175–94.
De Mello Jr Luiz R., (1999). Foreign Direct Investment-led Growth: Evidence from Time Series and Panel Data. Oxford Economic Papers, 51:133-154
Dinda, S., (2009). Environmental Kuznets Curve Hypothesis: a Survey. Ecological Economics, 49(4): 431-455.
Engle, R.F. and Granger, C.W.J. (1987). Cointegration and Error Correction: Representation, Estimation and Testing. Econometrica, 55: 251-276.
Grossman, G.M. and Krueger, A.B. (1991). Environmental Impacts of a North American Free Trade Agreement. NBER Working Paper No. 3914.
Grossman, G. M. and Krueger, A. B. (1995). Economic growth and the environment, Quarterly Journal of Economics, 110, 353–377.
Hausman, Jerry A. (1978). Specification Test in Econometrics. Econometrica. 1251 – 1272
He, J. (2005). Pollution haven hypothesis and Environmental impacts of foreign direct investment: The Case of Industrial Emission of Sulfur Dioxide (SO2) in Chinese provinces. Ecological Economics
He, J. (2008). Foreign Direct investment and air Pollution in China: evidence from Chinese Cities. Région et Développement n°.Vol. 28:132-150
Hein, S. (1992). Trade Strategy and the Dependency Hypothesis: A Comparison of Policy, Foreign Investment, and Economic Growth in Latin America. Economic Development and Cultural Change, 40(3); 495-521
Herzer, D., Klasen, S and Nowak-Lehmann, F. D., (2008). In search of FDI-led growth in developing countries: The way forward. Economic Modeling: 25, 793–810.
Jing, Z. (2008). Foreign Direct Investment, Governance, and the Environment in China: Regional Dimensions. An Unpublished Ph.D. Thesis Submitted to Department of Economics, School of Social Sciences, The University of Birmingham.
Kim, H. S., and Baek J. (2011). The Environmental Consequences of Economic Growth
Revisited. Economic Bulletin, Vol. 31, no. 2, pp. 1 – 13
Kingston, K.G. (2011). The Dilemma of Minerals Dependent Economy: The case of Foreign Direct Investment and Pollution in Nigeria. African Journal of Social Sciences, Volume 1 (1): 1-14
Lean H. H. and Payne, J. E. (2010). CO2 Emission Electricity Consumption and Output in ASEAN. Applied Energy 89: 1858-1864.
Lee, G. C. (2010). Foreign direct investment, pollution and economic growth: evidence from Malaysia. Applied Economics, 41: 1709-1716.
Muhammad S., Samia, N. and Talat A. (2011). Environmental Consequences of Economic Growth and Foreign Direct Investment: Evidence from Panel Data Analysis. MPRA Paper No. 32547. Available Online at http://mpra.ub.uni-muenchen.de/32547/
Nuzhat, F. (2011) Impact of Foreign Direct Investment on Economic Growth in Pakistan
Ogunleye, E. K. (2009). Exchange Rate Volatility and Foreign Direct Investment in SubSaharan Africa: Evidence from Nigeria and South Africa. Applied Economics Modelling in Nigeria. Ibadan University Press, Ibadan, 291-307.
Pao, H-T and Tsai, C-H., (2011). Multivariate granger causality between CO2 emissions, energy consumption, FDI (foreign direct investment) and GDP (gross domestic product): Evidence form a panel of a BRIC (Brazil, Russian Federation, India, and China) countries. Energy, Vol. 36: 685-693.
Phillips, P. C. B. and Perron, P. (1988). Testing for Unit Roots in Time Series Regressions, Biometrika, 75: 335-346.
Posu, S. M. A. (2014): Economic liberalization, economic growth, and environmental quality in Nigeria (1970-2012). PhD Thesis, Department of Economics, Obafemi Awolowo
University, Ile-Ife, Nigeria.
Selden, T. M. and Song, D. Q. (1994). Environmental Quality and Development: Is there a Kuznets Curve for Air Pollution Emission. Journal of Environmental Economics and Management. 27: 147-162.
Singh, R.D. (1998). The Multinational’s Economic Penetration, Growth, Industrial Output and Domestic Savings in Developing Countries: Another Look. The Journal of Development Studies, 25(1):55-82.
Sreedharm, N. (2004). Business Cycle, A Theoretical Historical and Statistical Analysis. JEL Classification. C32. Pp. 1-38
Suri, V. and Chapman, D. (1998). Economic Growth, Trade and The Energy: Implications For The Environmental Kuznets Curve. Ecological Economics, 25(2): 195-208.
World Bank (2013). World Development Indicators, http://publications.worldbank.org/WDI/.
Xing, Y. and Kolstad, C. (2002). Do Lax Environmental Regulations Attract Foreign Investment? Environmental and Resource Economics, 21: 1-22.
Xu G. E. and Yi T. Y. (2005). Environmental Quality, FDI and Economic Growth Review of Economic and Statistics, 30, 17-25.
Xu, B. (2001) “Multinational enterprises, technology diffusion and host Country productivity growthâ€, Journal of Development Economics, 62:477-494
Yinusa, D. O. (2004) Exchange Rate Variability, Currency Substitution and Monetary Policy in Nigeria (1986 – 2001)
Yinusa, D.O and Akinlo, E. A. (2008), Exchange Rate Volatility, Currency Distribution and Monetary Policy in Nigeria. MPRA Paper No. 16255.
Yu, X. (2012). Pollution, Foreign Direct Investment and Economic Growth: Some New Evidences from Urban China.
Zarsky, L. (1999). Havens, Halos and Spaghetti: Untangling the Evidence about Foreign Direct Investment and the Environment. Paper presented at an OECD Conference on Foreign Direct Investment and the Environment, The Hague, Netherlands.
Zhang, X. P., and Cheng X. M. (2009). Energy Consumption, Carbon Emissions, and Economic Growth in China. Ecological Economics, Vol. 68, No. 10, pp. 2706 – 2712.
Zhang, Y. J. (2011). The Impact of Financial Development on Carbon Emissions – An Empirical Analysis. Journal of Agricultural Economics, 74, pp. 1144 – 1149.
