Foreign Direct Investment and COsub2/sub Emissions in Sub-Saharan Africa: A Heterogeneous Panel Causality Analysis

Following the density of the literature and the consensus in empirical studies, the aim of this article is to examine the nature of the relationship between foreign direct investment (FDI) and carbon dioxide (COsub2/sub) emissions in sub-Saharan Africa (SSA). To this end, the methodological strategy employed is based not only on a theoretically sound multivariate framework, but also on recent developments in panel data econometrics, namely fully modified ordinary least squares (FMOLS) estimators, dynamic ordinary least squares (DOLS) estimators and the vector error correction model. In addition, the stationarity properties of the panel variables are examined, and the panel cointegration technique is used to test cointegrating relationships in the series of variables. The panel is composed of 38 SSA countries over the period 2000-2022. The main results show that in SSA: the variables move together in the long term. A 1% increase in inward FDI increases COsub2/sub emissions by 0.210%. This result suggests that FDI has flowed to SSA because of its weak environmental regulations, thus verifying the pollution haven hypothesis. In the long term, there is a bidirectional relationship between inward FDI and COsub2/sub emissions. In all the models used, renewable energy consumption reduces COsub2 /subemissions. Therefore, SSA needs to put in place effective environmental rules to better guide FDI; put in place strategies to harness and add value to its energy sector, implement policies and strategies that ensure FDI attractiveness without abandoning the environment.