Do international investment contribute to environmental pollution? Evidence from 20 African countries

Abstract

International investment is needed in every economy, and every economy is expected to grow and attract investment. Despite the need of the above in every country, the dilemma is whether it has something to do with the environment. Hence the study into the impact of FDI on environment takes into consideration twenty African countries from 1995 to 2016. The study utilized Pesaran (2015) LM test, Pesaran (2007) CD, and Breusch and Pagan (1980) LM test as well as Pesaran (2007) and Im et al. (2003) panel root unit test, Westerlund (2007) test, Driscoll-Kraay OLS, average mean group (AMG), fully modified least square (FM-OLS), and the quantile regression (QR). The study indicated that foreign direct investment favorably impact ecological sustainability in the long run. The study found bi-directional link between income and CO2 pollution. Clean energy and urbanization were found to have negative impact on the economy, while fossil fuel had positive impact on the economy. Both clean energy and urbanization were found to have bi-directional relationship with CO2 pollution, but fossil fuel has uni-directional relationship with pollution. The study prompted a lot of policy recommendation such as in the interest of reducing ecological harm; these countries’ authorities could enforce the laws in the form of protecting ecology policies when dealing with international investment.