Does foreign capital flow into ‘greener pastures’? Exploring the potential of FDI in mitigating carbon emissions in African states

ABSTRACT

Our study provides fresh insights into FDI's impact on carbon emissions across 51 African nations. Analysing data from 1990 to 2021, we use ARDL estimates and wavelet coherence analysis. While ARDL shows insignificant cointegration for most countries, wavelet coherence reveals: (i) 17 countries with a positive FDI-emissions link, (ii) 16 countries with a negative association, and (iii) 18 countries with ‘sign switching’ nonlinear dynamics. With no clear regional patterns, our main policy implication stresses the need for aligning regional efforts, like AfCFTA, with tailored country-specific strategies to guide capital flows towards cleaner industries. We advocate for industry-level FDI data in Africa to pinpoint sectors needing monitoring for greener production. On the global policymaking level, we assert that FDI cannot significantly address climate justice for most African countries.

KEYWORDS:

• Pollution Haven hypothesis
• Pollution Halo hypothesis
• Foreign direct investment
• Carbon emissions
• ARDL
• wavelet coherence
• Africa

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The data is available from the authors upon reasonable request.