Foreign direct investment, gross domestic product and carbon dioxide emission in sub-Saharan Africa: A disaggregated analysis

Abstract

This paper investigates the heterogeneous effect of sector-level foreign direct investment on carbon dioxide (CO₂) emissions in 36 sampled SSA countries from 1990 to 2016. By using the system GMM estimation technique, the study reveals that industry FDI increases CO₂ emissions validating the pollution haven hypothesis while Agric FDI and service FDI reduce CO₂ emissions. In general, a U shape hypothesis holds for Agric FDI and CO₂ emissions, but an inverted U shape for industry FDI and Industry CO₂ emissions and a linear and negative relationship between services FDI and services CO₂ emissions. Thus, there is a need to evaluate the environmental cost of investment in the industrial sector before granting foreign investors a permit to operate. In addition, there should be specific policies to attract FDI into the agriculture and services sectors to benefit from the positive spillover effect of transfers of cleaner technology.