The Relationship between CO2 Emission and Foreign Direct Investment Download PDF

Journal Name : SunText Review of Economics & Business

DOI : 10.51737/2766-4775.2023.098

Article Type : Research Article

Authors : Turay A, Seraj M and Ozdeser H

Keywords : Sierra Leone; Economic growth; Non-linear ARDL; Foreign direct investment; CO2 emissions

Abstract

This study uses yearly time series data from 1980-2020 and employ the Nonlinear Autoregressive distributed Lag model by Shin et al (2014) to check the asymmetric effect of the independent variables on the dependent variable (C02). In order to support the environmental Kuznet curve and pollution haven hypotheses in Sierra Leone, this study analyzes the link between CO2 emissions, urban population growth, energy consumption, and foreign direct investment. The result from the ADF test shows that Energy consumption, Economic growth and urban population growth are integrated at level (I (0)) at 1% level of significance for both EC and GDP and at 5% significance level for UPG. FDI and CO2 are integrated at first difference at 1% significant level. The NARDL bound test by Shin verify the existence of long run cointegrating relationship among the variables this study supports the pollution haven hypothesis in Sierra Leone, as both positive and negative shocks in FDI reduces the effect of CO2 emission in the short run. This is in corroboration with strict laws and regulations impose by the government and also encourage foreign and domestics firms to import sophisticated plant and machinery, ban on the importation of used cars more than 5 years and other carbon emission prone machine and other equipment with high environmental degradation propensity. Both positive and negative shocks on urban population growth contribute significantly in reducing CO2 emission in Sierra Leone. An increasing in urban population decreases the use of using traditional meaning of cooking practices in most rural communities. The result of this study supports the Environmental Kuznets curve and pollution haven hypotheses in Sierra Leone. This study shows that both increase and decrease changes in GDP reduces C02 emissions, also both positive and negative change in FDI reduces Carbon dioxide emissions in the short run. The error correction term (ECT) shows a high speed of adjustment (103%) in correcting any disequilibrium in the long run. The findings of this study recommend that the central government continue to institute laws that will encourage green environmental practices and in turn protect the environment from future depletion. The approved FDI inflows in Sierra Leone must be well coordinated and restricted to a productive and innovative technological imprint which support FDI, Urbanization, clean energy consumption and a significant growth in the economy. To address the issues of environmental sustainability, polies that aim at combating the negative effect of climate change should be induce.