Is Africa a pollution haven or halo Evidence from 20 largest FDI recipient countries in Africa

Abstract

With an increasing amount of FDI flows to Africa, much concern about the potential effects of FDI on the environment has been raised. Accordingly, this study investigates the environmental effect of FDI and checks the validity of pollution haven and/or halo hypotheses in 20 largest FDI recipient African countries over the period 1990-2017 using Cross-Sectionally Augmented Auto-Regressive Distributed Lag (CS-ARDL) estimator in a Dynamic Common Correlated Effects (DCCE) approach. Coming to the main estimation results, FDI is found to have no significant environmental effects, indicating neither pollution-haven nor pollution-halo hypothesis is valid in Africa. However, the estimates across individual countries confirm mixed evidence regarding the two hypotheses. Further, livestock production is found as the major driving force of environmental degradation in the region. Finally, the study suggests that environmental concerns should not be overlooked while pursuing pro-growth FDI-related policies given that FDI is perceived as a good channel for positive environmental spillovers to host countries.