Do FDI Inflows into African Countries Impact Their CO2 Emission Levels?

Abstract

The emitted levels of CO2 continue to be a striking topic. These emissions have been growing over the years, thus, making them a predicament to be reckoned with. Eradicating such a predicament has not been easy because finding an optimal determinant has not been achieved by scholars; however, foreign direct investment inflows are known to play a role in such varying instances. Therefore, to analyze the impact that such inflows have on CO2 emissions, this study employs data from 41 African countries from 2005 to 2019 and aims to assess how foreign direct investment and other variables influence CO2 emitted levels. Moreover, this study tests the validity of the pollution haven and halo hypotheses on the employed African countries as its two main objectives. After applying the pooled least squares, fixed and random effects models, and the generalized method of moments, the findings revealed that per the adopted African countries, the pollution haven and halo hypotheses do not hold; however, foreign direct investment inflows contribute to the rising and falling levels of CO2 emissions. In addition, the financial structure and per capita GDP increase the African countries’ CO2 emitted levels, while trade openness causes a reduction. Based on the aforementioned findings, this study recommends that the government, policy-makers, industries, and interested personnel of this study’s employed countries should: apply and execute policies, laws, and regulations that will deter or punish polluting foreign investment and encourage clean ones; since green finance is making waves but is not well established in most African countries, green financing systems should be initiated and implemented; establish preferential trading policies that will highlight an addition of value via clean technology; and practice carbon capture, usage, and storage.