Abstract
This paper investigates the threshold effect of environmental degradation on the FDI-poverty nexus in sub-Saharan Africa for the period 1986–2018. The study used panel threshold regression for the empirical analysis. The evidence from threshold regression using different measures of poverty and environmental degradation shows that the poverty reduction effect of FDI is not eroded by environmental degradation. The study found overwhelming evidence that at the higher level of environmental degradation, FDI contributes significantly to poverty reduction except when Household final consumption is used to proxy poverty and FDI produces an insignificant effect on poverty reduction at the higher level of methane emissions and nitrous oxide emission. Based on this finding, any attempts to reduce environmental degradation by reducing the inflow of FDI will worsen poverty rates in the region.
Highlights
In the theoretical literature, foreign direct investment (FDI) is expected to reduce poverty through an increase in economic growth
Contrary to when household final consumption is used to proxy poverty, above the threshold level of methane emission, Foreign Direct Investment (FDI) contributes to poverty reduction when the human development index is used to proxy poverty
This is an indication that while lower methane emission is good for poverty reduction effect of FDI when household final consumption is used as proxied for poverty, higher methane emission is, good for poverty reduction effect of FDI when poverty is proxied by life expectancy and human development index
Summary
Foreign direct investment (FDI) is expected to reduce poverty through an increase in economic growth. Dada and Akinlo Futur Bus J (2021) 7:21 host country adopt environmentally friendly technologies, clean energy and adopt best international practices which will protect the environment from degradation and reduce poverty. This implies that the poverty reduction effect of FDI can be eroded by the decrease in environmental quality in the long run. A weak environmental quality will worsen environmental pollution and thereby increase the poverty rates if the attention is focused only on the inflow of FDI without any policies that can protect the environment and the people from unhealthy activities of the multinational corporation
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