Effects of Foreign Direct Investment on Environmental Quality in West Africa

Abstract

Foreign direct investment (FDI) has played a key role in the growth and development of developing economies. However, one prominent opposing question about foreign direct investment is whether it is a blessing or a curse to the natural environment of the host country. Despite the existing theoretical ambiguity on FDI-environmental quality nexus in West Africa, few studies conducted in the area have not considered all the sixteen West African countries. Again, these studies did not extend the argument to cover the pollution haven hypothesis (PHH) to determine whether emission in the sub-region is attributed to domestic industries or pollution-induced multinational companies. This is the knowledge gap that this research seeks to address. Specifically, this research examines the effect of foreign direct investment (FDI) on environmental quality in West Africa and also tests empirically the existence of the pollution haven hypothesis. Using carbon dioxide emission as a proxy for environmental quality, this study employs the random/fixed effects model on ten-year panel data for all the sixteen countries in
West Africa. Parallel to the Sustainable Development Goal (SDG) 13, examination of these issues is of great importance as it will help save the environment from the concomitant effects of climate variations and also enlighten policymakers with concrete knowledge as to whether domestic industries or influx of multinational companies is the source of emissions level in West Africa.