Foreign Direct Investment, Trade Openness and Environmental Degradation in SSA Countries. A Quadratic Modeling and Turning Point Approach

Abstract

The consequences of carbon dioxide (CO2) emissions in Sub Saharan Africa (SSA) countries cannot be ignore given it adverse effect on human health and global warming. With rising CO2 emissions and fallen volume of trade openness and FDI inflows in recent time, we seek to examine the effect of trade openness and foreign direct investment (FDI) on environmental degradation using time series data from 1975 to 2020 in SSA. Using the environmental Kuznets curve (EKC) framework, the study employs a quadratic modeling and turning point approach to realize the study objectives. The findings reveals that (1) the trade openness-EKC and FDI-EKC does not hold given the presence of decreasing effects in the short run and increasing effects in the long run; (2) it confirms that a U-shaped trade openness-emissions and FDI-emission nexus holds given the decrease in trade openness and FDI in the short run and an increase in trade openness and FDI in the longrun; (3) The analysis supports the halo effect hypothesis before the turning point but the pollution haven hypothesis sets in after the turning point; (4) it shows evidence that trade openness and FDI contributes to reduce CO2 emissions in the short but increase it in the long run. The study recommends that SSA countries should adopt stringent environmental policies to attain sustainable economic growth without associative harm to the environment.

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