Does foreign direct investment asymmetrically influence carbon emissions in sub-Saharan Africa? Evidence from nonlinear panel ARDL approach.

Abstract

In recent decades, the relationship between foreign direct investment (FDI) and carbon emissions has garnered the extensive attention by researchers and governments across the globe. Also, for most part, empirical studies on this nexus have assumed a symmetric relationship through the imposition of linear specifications. However, such relationships do not account for asymmetries in the impact of FDI on carbon emissions. In the case of sub-Saharan Africa, such relationships are crucial and need more careful analysis given the important role FDI plays in the development of the sub-region. Thus, this paper examines the asymmetric effect of FDI on carbon emissions in 41 selected sub-Saharan African countries spanning from 1996 to 2018. In order to decompose FDI into positive and negative partial sum and examine possible asymmetric effects of the variables on carbon emissions, we used the panel nonlinear autoregressive distributed lag (NARDL) approach. This method accounts for cross-sectional variances. Our results show that in the long run, a positive shock in FDI increases carbon emissions while a negative shock lowers them. Our results also show that carbon emissions respond asymmetrically to changes in FDI. It is recommended that comprehensive investment policies aimed at encouraging clean technology and environmentally friendly investments be implemented to ensure environmental sustainability.