Ecological Footprint, Economic Uncertainty and Foreign Direct Investment in South Africa: Evidence From Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Approach

Abstract

This study was carried out to analyze the impact of ecological footprint (EFP), exchange rate (EXC) and bio-capacity (BC) on foreign direct investment (FDI) in South Africa. The study was based on monthly time series data from 1996 to 2017. Asymmetric dynamic multiplier, Linear and Nonlinear Autoregressive distributed lag models were used to establish the relationship between the selected variables. Linear ARDL reveal significant symmetric relationship between FDI, ecological footprint, biocapacity and exchange rate in the short run. Nonlinear Autoregressive distributed lag (NARDL) bounds test confirmed the existence of cointegration between the variables. The non-linear short-run results reveal that positive shock of EXC affect FDI negatively. While positive shock from EFP has a significant and positive effect on FDI. Interestingly, in the long run the negative shock of EXC on FDI is negative while the positive shock of EXC affects FDI positively. Furthermore, the long-run asymmetric dynamic multiplier showed that the cumulative positive and negative effect of EFP and BC on FDI is positive. Hence, it is important that policies be put in place to ensure environmental sustainability and stable exchange rate while growing the South African economy. Policy regulations on production procedures in South Africa should be established to encourage advanced clean technologies in FDI production sectors

From foreign direct investment to environmental regulations: Does a feedback effect ever exist?

“…The theoretical model suggests that whether the effect of FDI on the environmental regulation stringency is either positive (i.e., more FDI will result in more stringent regulations) or negative (i.e., more FDI will result in less stringent regulations) depending on the host country's political structure [ 18 , 21 , 32 ]. In this regard, nonlinear methods can be employed (e.g., the nonlinear ARDL model) [ [48] , [49] , [50] ]. However, the nonlinear estimation method is not appropriate in the current research.…”

“…There is no perfect measure of environmental regulation stringency until now, although various measures have been adopted. The existing literature often employs data on environmental taxes or environmental patents to measure environmental regulations [ 50 , 52 , 53 ], but data on these indices are often outdated. Therefore, we proxy for environmental regulations using the environmental policy stringency index from the OECD Environmental Statistics database (OECD).…”

Environmental Sustainability and Economic Growth: A Panel Data Analysis in East Africa

“…Wald tests for Granger causality reveal that FDI is independent [14]. Advanced clean technology should be promoted in FDI manufacturing areas by regulations on production processes [15].…”

A Revisit of Motives for Chinese Outward Foreign Direct Investment: The Role of the Institution in Host Countries

“…While it is clear that the Chinese firms search for natural resources by investing in African countries (Rjoub et al, 2017; Williams et al, 2022), they do not aim at obtaining natural resources in Europe and North America. With the framework provided by Buckley et al (2018), it is likely that, after the global financial crisis, the Chinese OFDI has been shifting to the advanced countries for either market or strategic asset seeking objectives.…”