One district one factory policy of Ghana, a transition to a low-carbon habitable economy?

Abstract

Ghana has proposed ‘One district, one factory’ policy which would bridge the income gap, improve standards of living, ease dependency ratio, and build up the economy. Based on the past trend of foreign direct investment (FDI) of Ghana, we examine the possible impact of this policy on its environment, validating the pollution haven or halo effect. We examined the validity of the environmental Kuznets curve (EKC) hypothesis. Augmented Dickey–Fuller and Phillips–Peron unit root tests were conducted to examine the presence of unit root among the variables. Johansen cointegration test was also used to examine the long-run relationship. The autoregressive distributed lag approach to cointegration, Granger causality test, and fully modified ordinary least square were the estimation methods employed. A unidirectional relationship was found between FDI and economic growth, FDI and energy consumption, and FDI and CO2 emissions. We found that the EKC was not valid for Ghana, but the pollution haven hypothesis was confirmed for Ghana. We therefore conclude that ‘One district one factory’ policy would only be beneficial if Ghana attracts cleaner industries, environmental regulations get much stringent, and environmentally related taxes are elevated.