THE DYNAMIC RELATIONSHIP BETWEEN FOREIGN DIRECT INVESTMENT AND CARBON EMISSIONS IN SOUTHERN AFRICA AND WEST AFRICA REGIONS: THE INTERVENING ROLE OF FINANCIAL DEVELOPMENT

Abstract

The study compares the regions of West and Southern Africa to assess the effect of foreign direct investment and financial development on carbon emissions. Panel data analysis was used in the study to look at the effects in 10 West African countries and 7 Southern African countries. The study employed dynamic panel data estimation techniques, particularly the panel quantile regression method and the generalised method of moment two-step (GMM) method estimation. These techniques were applied to ascertain the extent of the effects and guarantee a trustworthy inference. The results show that financial development has a positive effect on carbon emissions while foreign direct investment has a negative impact on carbon emissions. Furthermore, the study demonstrates that the Environmental Kuznets Curve (EKC) hypothesis exists in Southern Africa. Given the evidence showing that increased domestic credit to private entities is associated with higher carbon emissions, the study recommends that both regions consider green policies. KEYWORDS: Foreign direct investment; carbon emissions; Financial development; dynamic panel data GMM estimations; panel quantile regression