The environmental footprint of international business in Africa; The role of natural resources

Abstract

This paper examines whether the effect of foreign direct investment and trade on the environment differs between natural and non-natural resource countries of Africa. We employ robust econometric modelings such as co-integration, Fully Modified Ordinary Least Square (FMOLS), and causality techniques on 46 African countries between 1985 and 2014. Consistent with the pollution halo hypothesis, we find that both foreign direct investment and trade have a positive impact on non-natural resource-rich countries. On the contrary, in line with the pollution haven argument, we find that FDI and trade to natural resource-rich countries are associated with low environmental quality. Our results, therefore, suggest that non-natural resources-rich countries benefit from FDI and trade via technological transfer from developed countries.