Environmental Impact of Foreign Direct Investment: The Role of Economic Complexity in Sub-Saharan Africa
DOI:
https://doi.org/10.33423/jabe.v27i2.7554Keywords:
business, economics, SSA, economic complexity index, environmental degradation, corruption, foreign direct investmentAbstract
This study investigates the short-run and long-run effects of foreign direct investment (FDI), corruption, and economic complexity on the environment in twenty-five sub-Saharan African (SSA) countries from 1996 to 2018. Using a dynamic panel data model, the results provide broad support for the pollution haven hypothesis and the existence of the environmental Kuznets curve in SSA. Our results indicate that the economic complexity index (ECI) is associated with rising environmental degradation. Low-quality FDI weakens environmental standards, and corruption facilitates the shift of polluting industrial activities from advanced countries to developing countries with less strict environmental rules. The paper finds that corruption, low quality FDI, and higher ECI tend to exacerbate environmental degradation in SSA. By considering the ECI, this studies contributes to the literature, analyzing the relationship between these key variables and the environment for some of the most vulnerable African countries that are said to be greatly impacted by climate change.
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