Abstract
One of the reasons pointed out, as the major cause of low investment in Nigeria is low saving. To bridge the saving-investment gap, there have been calls for inflow of foreign direct investment into the country. However, there are arguments about the impacts of FDI on the host country. Principal among the various arguments is its effect on environmental degradation .This paper sets out to examine the validity of this perception using Granger causality test. It examines the direction of causality between FDI and economic growth, Economic growth and Pollution, FDI and Pollution. The results revealed that there is no causality between the growth rate of GDP and FDI, growth rate of GDP and Co 2. The only causality found is a unidirectional causality between the growths of FDI grows and the growth rate of pollution. The direction is from growth rate of FDI to the growth rate of pollution. This paper concludes that government should make policy that will ensure that multinational companies use equipment that is environmentally friendly.
Highlights
Motivation: One of the reasons that have been pointed out as the major cause of low investment, and low development in Nigeria is low saving
The relationship between economic growth and foreign direct investment has been intensively analyzed empirically over the past two decades .While some studies observe a positive impact of Foreign Direct Investment (FDI) on economic growth, others detect a negative relationship between the two variables (Aitkin and Harrison (1999), Djankov and Hoekman (2000), Damijan et al (2001), Konings (2001), Castellani and Zanfei (2002a, 2002b)
Annual real GDP is used to proxy growth, annual Co2 is used as proxy for pollution
Summary
Motivation: One of the reasons that have been pointed out as the major cause of low investment, and low development in Nigeria is low saving. The first is the relocation of heavy polluting industries from developed countries with stringent environmental policies to developing countries where similar policies do not exist, or are not enforced This may be true especially with the general conclusion that the developed nations contribute the lion share of greenhouse emission that is the major cause of the global warming, and the consequent Kyoto Protocol in which they promised to decrease their emission levels in aggregate of 5% reduction in the 1990 level of global emissions before the end of a first commitment period in 2012.The second dimension is the dumping of hazardous waste generated from developed countries (industrial and nuclear energy production), in developing countries. Existing literatures have substantiated the claim that lax environmental law or regulation in developing countries attracts FDI (Grossman and Krueger, 1991; Friedman et al, 1992; Smarzynska and Wei, 2001.)
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