Environmental risk and growth in foreign direct investment: Is the composition of FDI in sub-Saharan Africa a speculative type?

Figures & data

Table 1. Country descriptive statistics - net inflow foreign direct investment

Country	Obs.	Mean	Median	Std. Dev.	Max.	Min.
Benin	24	0.0079	0.0052	0.0108	0.0305	−0.0066
Botswana	24	0.0254	0.0195	0.0189	0.0750	0.0045
Burkina Faso	24	0.0106	0.0062	0.0102	0.0365	0.0002
Burundi	24	0.0047	0.0002	0.0116	0.0476	−0.0006
Cameroon	24	0.0157	0.0175	0.0103	0.0436	−0.0011
Cape Verde	24	0.0658	0.0633	0.0305	0.1267	0.0130
Chad	24	0.0646	0.0382	0.1135	0.4628	−0.0485
Comoros	24	0.0049	0.0036	0.0054	0.0226	0.0001
Congo Republic	24	0.1025	0.0851	0.1316	0.3944	−0.0870
Cote D’Ivoire	24	0.0191	0.0172	0.0104	0.0603	0.0107
Equatorial Guinea	24	0.2006	0.0930	0.3555	1.6182	−0.0402
Ethiopia	24	0.0277	0.0303	0.0169	0.0558	0.0026
Gabon	24	0.0357	0.0380	0.0367	0.0920	−0.0501
Gambia	24	0.0351	0.0287	0.0230	0.0780	−0.0012
Ghana	24	0.0451	0.0401	0.0274	0.0947	0.0096
Guinea	24	0.0336	0.0166	0.0466	0.1883	−0.0084
Guinea Bissau	24	0.0159	0.0144	0.0110	0.0427	0.0010
Kenya	24	0.0100	0.0071	0.0092	0.0346	0.0004
Lesotho	24	0.0356	0.0362	0.0192	0.0871	0.0042
Liberia	20	0.2513	0.0912	0.3301	1.0334	0.0030
Madagascar	24	0.0400	0.0321	0.0370	0.1345	0.0020
Malawi	24	0.0273	0.0148	0.0287	0.1015	−0.0015
Mali	24	0.0251	0.0253	0.0155	0.0634	−0.0032
Mauritania	24	0.0624	0.0432	0.0802	0.2765	−0.1162
Mauritius	24	0.0238	0.0252	0.0168	0.0570	−0.0060
Mozambique	24	0.1247	0.0631	0.1144	0.3946	0.0139
Namibia	24	0.0482	0.0406	0.0298	0.1091	−0.0033
Niger	24	0.0358	0.0232	0.0366	0.1216	−0.0007
Nigeria	24	0.0151	0.0158	0.0070	0.0293	0.0050
Rwanda	24	0.0175	0.0185	0.0145	0.0409	0.0008
Sierra Leone	24	0.0578	0.0446	0.0706	0.3230	0.0002
South Africa	24	0.0150	0.0113	0.0129	0.0598	0.0023
Sudan	23	0.0354	0.0330	0.0177	0.0765	0.0000
Tanzania	24	0.0310	0.0282	0.0122	0.0566	0.0140
Togo	24	0.0294	0.0239	0.0395	0.1882	−0.0337
Uganda	24	0.0340	0.0320	0.0123	0.0666	0.0200
Zambia	24	0.0524	0.0482	0.0194	0.0942	0.0155

Table 2. Variable descriptive statistics

	Obs.	Mean	Median	Std. Dev.	Max.	Min.	VIF
Net FDI Inflow/GDP	875	0.0431	0.0233	0.0960	1.6182	−0.1162
Money Supply Uncertainty	888	0.0121	0.0113	0.1093	0.6667	−1.3337	1.06
GDP Growth Uncertainty	888	0.0060	0.0011	0.0551	1.6351	0.0000	1.08
Inflation Uncertainty	864	−0.0191	0.0016	0.4186	2.9275	−8.3918	1.09
Exchange Rate Uncertainty	888	0.2803	0.0111	5.2200	154.59	0.0000	1.06
Financial Dev. Uncertainty	834	0.0011	0.0002	0.0036	0.0651	0.0000	1.20
Terms of Trade Uncertainty	888	0.1272	0.0257	0.2928	2.4679	−1.8237	1.15
Trade Uncertainty	888	0.0510	0.0084	0.2937	5.5609	0.0000	1.04
Natural Log CO2 Emissions	840	7.6147	7.5416	1.5803	13.129	4.3439	1.41
GDP Growth	875	0.0469	0.0448	0.0732	1.4997	−0.3639	1.11
Fixed Telephone Subs.	888	2.4349	0.7889	4.9765	34.273	0.0000	2.21
Population Growth	880	0.0253	0.0265	0.0096	0.0812	−0.0062	1.78
Gov’t Effectiveness	839	−0.7291	−0.7623	0.5983	1.0570	−1.8849	7.11
Political Stability	840	−0.4980	−0.3633	0.8633	1.2192	−2.6992	2.00
Regulatory Quality	840	−0.6263	−0.6098	0.5806	1.1273	−2.2749	6.09

Table 3. Pairwise correlation matrix

	(A)	(B)	(C)	(D)	(E)	(F)	(G)	(H)	(I)	(J)	(K)	(L)	(M)	(N)	(O)
Net FDI Inflow/GDP (A)	1
Money Supply Uncertainty (B)	0.02	1
GDP Growth Uncertainty (C)	0.28	0.06	1
Inflation Uncertainty (D)	0.03	0.02	0.01	1
Exchange Rate Uncertainty (E)	−0.02	0.01	−0.01	0.14	1
Financial Dev. Uncertainty (F)	−0.02	−0.01	−0.02	0.02	−0.02	1
Terms of Trade Uncertainty (G)	0.04	0.04	0.09	0.01	0.02	−0.05	1
Trade Uncertainty (H)	0.07	0.05	0.01	0.01	−0.01	−0.01	−0.04	1
Natural Log CO2 Emissions (I)	−0.08	−0.08	−0.06	0.16	0.05	0.29	0.03	−0.07	1
GDP Growth (J)	0.32	−0.05	0.18	0.02	0.00	−0.06	0.02	0.03	0.02	1
Fixed Telephone Subs. (K)	−0.05	−0.01	−0.03	−0.02	−0.03	0.34	−0.13	−0.04	0.22	−0.04	1
Population Growth (L)	0.12	0.01	0.12	0.02	0.00	−0.25	0.20	0.08	−0.21	0.18	−0.59	1
Gov’t Effectiveness (M)	−0.09	−0.12	−0.09	0.12	−0.06	0.33	−0.27	−0.10	0.39	0.02	0.64	−0.51	1
Political Stability (N)	0.04	−0.17	0.01	−0.05	−0.16	0.17	−0.14	−0.09	−0.02	0.02	0.46	−0.26	0.58	1
Regulatory Quality (O)	−0.13	−0.14	−0.12	0.07	−0.10	0.29	−0.20	−0.13	0.36	−0.04	0.59	−0.44	0.90	0.60	1

Table 4. Effect of environmental risk on net investment inflow in SSA

	(1)	(2)
Money Supply Uncertainty	0.0210	0.0228
	(1.07)	(0.83)
GDP Growth Uncertainty	0.338***	0.338***
	(5.69)	(5.30)
Inflation Uncertainty	0.0157**	0.0288**
	(2.33)	(2.44)
Exchange Rate Uncertainty	−0.00230**	−0.00244**
	(−2.44)	(−2.33)
Financial Dev. Uncertainty	1.042**	0.839*
	(2.46)	(1.79)
Terms of Trade Uncertainty	0.00344	0.000616
	(0.29)	(0.05)
Trade Uncertainty	0.0148	0.0137
	(0.32)	(0.27)
Government Effectiveness	−0.00604	−0.0117
	(−0.39)	(−0.67)
Political Stability	0.0179***	0.0162***
	(4.79)	(3.55)
Regulatory Quality	−0.0334**	−0.0236
	(−2.25)	(−1.44)
GDP Growth	0.505***	0.551***
	(5.22)	(5.17)
Fixed Telephone Subs.	0.000304	0.000408
	(0.74)	(0.88)
Population Growth	0.0295	0.0290
	(0.08)	(0.07)
Natural Log-CO2 Emissions		−0.000946
		(−0.63)
Constant	0.00279	0.00901
	(0.27)	(0.50)
Observations	736	662
No. of Countries	37	37
R-Sq.	0.169	0.179
Wald Chi2	147.2	127.8
Prob.	7.60e-25	1.88e-20

*p < 0.1, **p < 0.05, ***p < 0.01. t statistics in parentheses.

Table 5. Moderating role of government effectiveness-relationship between environmental risk and foreign investment inflow

	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
Money Supply Uncertainty	−0.0700	0.0282	0.0234	0.0228	0.0227	0.0238	0.0219	0.0225
	(−0.71)	(1.01)	(0.85)	(0.83)	(0.83)	(0.87)	(0.80)	(0.82)
GDP Growth Uncertainty	0.333***	6.447***	0.338***	0.338***	0.338***	0.340***	0.339***	0.335***
	(5.01)	(3.89)	(5.29)	(5.30)	(5.32)	(5.35)	(5.36)	(5.28)
Inflation Uncertainty	0.0267**	0.0284**	−0.266	0.0289**	0.0286**	0.0295**	0.0287**	0.0312**
	(2.41)	(2.47)	(−1.63)	(2.44)	(2.42)	(2.41)	(2.42)	(2.38)
Exchange Rate Uncertainty	−0.00232**	−0.00230**	−0.00000477	−0.000131	−0.00243**	−0.00245**	−0.00247**	−0.00238**
	(−2.21)	(−2.24)	(−0.00)	(−0.01)	(−2.32)	(−2.36)	(−2.34)	(−2.30)
Financial Dev. Uncertainty	0.789*	0.775*	0.806*	0.838*	0.952*	0.868*	0.620	0.703
	(1.69)	(1.74)	(1.75)	(1.79)	(1.82)	(1.82)	(0.90)	(1.53)
Terms of Trade Uncertainty	0.000956	0.00228	−0.0000207	0.000657	0.000576	0.0425**	0.00108	0.000982
	(0.07)	(0.19)	(−0.00)	(0.05)	(0.05)	(2.05)	(0.08)	(0.08)
Trade Uncertainty	0.0132	0.0137	0.0135	0.0136	0.0137	0.0135	0.267	0.0133
	(0.27)	(0.28)	(0.27)	(0.27)	(0.27)	(0.27)	(0.44)	(0.27)
Natural Log-CO2 Emissions	−0.00128	0.000385	−0.00104	−0.000924	−0.000968	−0.000827	−0.000762	0.000265
	(−0.87)	(0.25)	(−0.69)	(−0.62)	(−0.65)	(−0.54)	(−0.49)	(0.19)
Government Effectiveness	−0.00852	−0.0219	−0.0116	−0.0117	−0.0109	−0.0156	−0.0135	−0.0267
	(−0.50)	(−1.27)	(−0.66)	(−0.67)	(−0.61)	(−0.88)	(−0.73)	(−1.27)
Political Stability	0.0160***	0.0174***	0.0166***	0.0162***	0.0162***	0.0166***	0.0163***	0.0164***
	(3.59)	(3.67)	(3.59)	(3.54)	(3.54)	(3.61)	(3.59)	(3.60)
Regulatory Quality	−0.0213	−0.0207	−0.0240	−0.0236	−0.0238	−0.0240	−0.0247	−0.0239
	(−1.29)	(−1.28)	(−1.45)	(−1.43)	(−1.45)	(−1.47)	(−1.55)	(−1.45)
GDP Growth	0.556***	0.508***	0.550***	0.551***	0.551***	0.545***	0.545***	0.554***
	(5.14)	(4.73)	(5.15)	(5.17)	(5.17)	(5.12)	(5.10)	(5.18)
Fixed Telephone Subs.	0.000198	0.000663	0.000309	0.000414	0.000467	0.000691	0.000388	0.000370
	(0.41)	(1.40)	(0.68)	(0.89)	(1.04)	(1.40)	(0.85)	(0.83)
Population Growth	−0.00364	−0.0128	−0.0403	0.0266	0.0360	0.0466	−0.0103	0.0585
	(−0.01)	(−0.03)	(−0.10)	(0.06)	(0.09)	(0.11)	(−0.03)	(0.14)
GE*MS_U	−0.134
	(−0.77)
GE*GDP_U		4.272***
		(3.70)
GE*INFL_U			−0.189*
			(−1.78)
GE*EXR_U				0.00228
				(0.25)
GE*FD_U					−0.693
					(−0.77)
GE*TOT_U						0.0331
						(1.63)
GE*TO_U							0.194
							(0.41)
GE*LnCO2								0.00192
								(1.26)
Constant	0.0153	−0.00848	0.0130	0.00880	0.00911	0.00322	0.00542	−0.00193
	(0.87)	(−0.44)	(0.72)	(0.49)	(0.50)	(0.17)	(0.25)	(−0.10)
Observations	662	662	662	662	662	662	662	662
No. of Countries	37	37	37	37	37	37	37	37
R-Sq.	0.180	0.191	0.180	0.179	0.179	0.180	0.181	0.179
Wald Chi2	129.2	148.7	138.3	129.3	133.2	140.9	129.7	168.0
Prob.	3.11e-20	4.30e-24	4.92e-22	2.88e-20	5.10e-21	1.55e-22	2.49e-20	6.12e-28

*p < 0.1, **p < 0.05, ***p < 0.01. t statistics in parentheses. MS_U = Money Supply Uncertainty, GDP_U = GDP Growth Uncertainty, INFL_U = Inflation Uncertainty, EXR_U = Exchange Rate Uncertainty, FD_U = Financial Development Uncertainty, TOT_U = Terms of Trade Uncertainty, TO_U = Trade Openness Uncertainty, LnCO2 = Natural Log of CO2 Emissions, GE = Government Effectiveness.

Table 6. Moderating role of political stability-relationship between environmental risk and foreign investment inflow

	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
Money Supply Uncertainty	0.0306	0.0217	0.0207	0.0206	0.0226	0.0217	0.0220	0.0241
	(0.81)	(0.80)	(0.75)	(0.76)	(0.83)	(0.80)	(0.80)	(0.88)
GDP Growth Uncertainty	0.337***	0.373***	0.337***	0.337***	0.338***	0.333***	0.338***	0.338***
	(5.27)	(5.23)	(5.28)	(5.23)	(5.30)	(5.21)	(5.33)	(5.20)
Inflation Uncertainty	0.0271**	0.0291**	0.0233*	0.0295**	0.0290**	0.0293**	0.0282**	0.0272**
	(2.37)	(2.44)	(1.90)	(2.49)	(2.45)	(2.49)	(2.29)	(2.35)
Exchange Rate Uncertainty	−0.00243**	−0.00258**	−0.00465	−0.0880	−0.00242**	−0.00230**	−0.00251**	−0.00214**
	(−2.28)	(−2.50)	(−1.62)	(−1.49)	(−2.31)	(−2.08)	(−2.54)	(−2.19)
Financial Dev. Uncertainty	0.816*	0.859*	0.842*	0.797*	0.951**	0.882*	0.738	0.764*
	(1.77)	(1.82)	(1.80)	(1.73)	(1.97)	(1.83)	(1.02)	(1.68)
Terms of Trade Uncertainty	0.000896	0.000316	0.000317	0.000907	0.000598	0.0148	0.000918	0.000197
	(0.07)	(0.02)	(0.02)	(0.07)	(0.05)	(1.05)	(0.07)	(0.02)
Trade Uncertainty	0.0130	0.0143	0.0136	0.0134	0.0136	0.0135	0.0927	0.0127
	(0.26)	(0.29)	(0.27)	(0.27)	(0.27)	(0.27)	(0.22)	(0.26)
Natural Log-CO2 Emissions	−0.000953	−0.00116	−0.000952	−0.000545	−0.00108	−0.00111	−0.00101	0.00144
	(−0.63)	(−0.80)	(−0.63)	(−0.34)	(−0.71)	(−0.74)	(−0.69)	(0.69)
Government Effectiveness	−0.0107	−0.0107	−0.0121	−0.0112	−0.0116	−0.0116	−0.0107	−0.0133
	(−0.61)	(−0.61)	(−0.69)	(−0.65)	(−0.66)	(−0.65)	(−0.64)	(−0.77)
Political Stability	0.0174***	0.0150***	0.0165***	0.0167***	0.0164***	0.0133***	0.0152**	−0.00666
	(3.39)	(3.33)	(3.59)	(3.62)	(3.48)	(2.63)	(2.39)	(−0.38)
Regulatory Quality	−0.0230	−0.0247	−0.0235	−0.0250	−0.0237	−0.0229	−0.0246*	−0.0235
	(−1.40)	(−1.51)	(−1.43)	(−1.51)	(−1.44)	(−1.40)	(−1.67)	(−1.43)
GDP Growth	0.554***	0.557***	0.554***	0.552***	0.552***	0.551***	0.546***	0.559***
	(5.13)	(5.14)	(5.15)	(5.18)	(5.17)	(5.18)	(5.31)	(5.26)
Fixed Telephone Subs.	0.000365	0.000483	0.000438	0.000345	0.000419	0.000501	0.000425	0.000300
	(0.79)	(1.06)	(0.93)	(0.77)	(0.91)	(1.06)	(0.93)	(0.70)
Population Growth	0.0782	0.0637	0.0302	−0.00502	0.0263	−0.0261	0.0232	−0.00815
	(0.19)	(0.15)	(0.07)	(−0.01)	(0.06)	(−0.06)	(0.06)	(−0.02)
PS*MS_U	−0.0528
	(−0.63)
PS*GDP_U		0.351
		(0.84)
PS*INFL_U			−0.0386
			(−0.91)
PS*EXR_U				−0.0347
				(−1.45)
PS*FD_U					−0.246
					(−0.43)
PS*TOT_U						0.0174
						(1.20)
PS*TO_U							0.0606
							(0.19)
PS*LnCO2								0.00294
								(1.45)
Constant	0.00814	0.00936	0.00867	0.00812	0.0100	0.0103	0.00890	−0.00956
	(0.44)	(0.53)	(0.48)	(0.45)	(0.55)	(0.58)	(0.49)	(−0.44)
Observations	662	662	662	662	662	662	662	662
No. of Countries	37	37	37	37	37	37	37	37
R-Sq.	0.179	0.180	0.179	0.179	0.179	0.180	0.179	0.180
Wald Chi2	127.0	128.6	134.2	129.6	130.1	134.2	130.6	129.0
Prob.	8.19e-20	4.04e-20	3.15e-21	2.52e-20	2.01e-20	3.22e-21	1.60e-20	3.31e-20

*p < 0.1, **p < 0.05, ***p < 0.01. Standard errors in parentheses. MS_U = Money Supply Uncertainty, GDP_U = GDP Growth Uncertainty, INFL_U = Inflation Uncertainty, EXR_U = Exchange Rate Uncertainty, FD_U = Financial Development Uncertainty, TOT_U = Terms of Trade Uncertainty, TO_U = Trade Openness Uncertainty, LnCO2 = Natural Log of CO2 Emissions, PS = Political Stability.

Table 7. Moderating role of regulatory quality-relationship between environmental risk and foreign investment inflow

	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
Money Supply Uncertainty	−0.0860	0.0214	0.0219	0.0217	0.0228	0.0189	0.0224	0.0221
	(−0.72)	(0.76)	(0.79)	(0.79)	(0.83)	(0.67)	(0.82)	(0.81)
GDP Growth Uncertainty	0.328***	1.278	0.336***	0.338***	0.339***	0.324***	0.339***	0.327***
	(4.75)	(0.59)	(5.23)	(5.29)	(5.36)	(4.94)	(5.34)	(5.17)
Inflation Uncertainty	0.0258**	0.0279**	−0.241***	0.0287**	0.0282**	0.0281**	0.0283**	0.0333**
	(2.26)	(2.50)	(−2.64)	(2.46)	(2.43)	(2.50)	(2.37)	(2.38)
Exchange Rate Uncertainty	−0.00232**	−0.00239**	−0.00423***	−0.0966	−0.00238**	−0.00258**	−0.00246**	−0.00213**
	(−2.17)	(−2.29)	(−3.04)	(−1.23)	(−2.28)	(−2.35)	(−2.37)	(−2.07)
Financial Dev. Uncertainty	0.791*	0.839*	0.841*	0.841*	1.082**	0.836*	0.734	0.545
	(1.69)	(1.80)	(1.81)	(1.80)	(2.14)	(1.81)	(1.26)	(1.18)
Terms of Trade Uncertainty	0.000920	0.000666	−0.000775	0.000310	0.000521	−0.0448**	0.00111	0.00178
	(0.07)	(0.05)	(−0.06)	(0.02)	(0.04)	(−2.24)	(0.09)	(0.14)
Trade Uncertainty	0.0123	0.0137	0.0133	0.0137	0.0137	0.0146	0.131	0.0123
	(0.25)	(0.28)	(0.27)	(0.27)	(0.28)	(0.29)	(0.32)	(0.25)
Natural Log-CO2 Emissions	−0.00147	−0.00107	−0.00119	−0.000767	−0.00107	−0.00160	−0.000902	0.00215
	(−0.93)	(−0.71)	(−0.78)	(−0.50)	(−0.73)	(−0.98)	(−0.60)	(1.52)
Government Effectiveness	−0.0103	−0.0109	−0.0146	−0.0117	−0.0113	−0.0117	−0.0106	−0.0122
	(−0.58)	(−0.64)	(−0.82)	(−0.67)	(−0.64)	(−0.68)	(−0.62)	(−0.70)
Political Stability	0.0156***	0.0156***	0.0168***	0.0164***	0.0159***	0.0154***	0.0162***	0.0168***
	(3.49)	(3.33)	(3.62)	(3.56)	(3.49)	(3.31)	(3.59)	(3.73)
Regulatory Quality	−0.0163	−0.0236	−0.0224	−0.0222	−0.0219	−0.0152	−0.0259	−0.0674**
	(−0.97)	(−1.44)	(−1.35)	(−1.33)	(−1.34)	(−0.86)	(−1.62)	(−2.33)
GDP Growth	0.559***	0.547***	0.557***	0.554***	0.552***	0.553***	0.545***	0.557***
	(5.11)	(5.08)	(5.19)	(5.20)	(5.19)	(5.14)	(5.07)	(5.24)
Fixed Telephone Subs.	0.000120	0.000360	0.000432	0.000302	0.000634	−0.0000344	0.000395	0.000322
	(0.23)	(0.80)	(0.91)	(0.66)	(1.43)	(−0.06)	(0.86)	(0.73)
Population Growth	−0.0125	−0.0353	−0.0522	0.0268	0.0423	−0.0711	0.00136	0.105
	(−0.03)	(−0.08)	(−0.13)	(0.07)	(0.10)	(−0.17)	(0.00)	(0.25)
RQ*MS_U	−0.201
	(−0.79)
RQ*GDP_U		0.589
		(0.43)
RQ*INFL_U			−0.250***
			(−2.91)
RQ*EXR_U				−0.0690
				(−1.20)
RQ*FD_U					−2.641*
					(−1.86)
RQ*TOT_U						−0.0528
						(−1.62)
RQ*TO_U							0.0841
							(0.29)
RQ*LnCO2								0.00552**
								(2.55)
Constant	0.0178	0.0111	0.0129	0.00961	0.00974	0.0226	0.00805	−0.0193
	(0.92)	(0.61)	(0.72)	(0.53)	(0.54)	(1.09)	(0.43)	(−1.00)
Observations	662	662	662	662	662	662	662	662
No. of Countries	37	37	37	37	37	37	37	37
R-Sq.	0.181	0.179	0.181	0.179	0.179	0.181	0.180	0.181
Wald Chi2	125.3	126.6	125.8	139.0	138.5	132.1	129.7	134.1
Prob.	1.73e-19	9.66e-20	1.38e-19	3.70e-22	4.61e-22	8.33e-21	2.41e-20	3.41e-21

*p < 0.1, **p < 0.05, ***p < 0.01. Standard errors in parentheses. MS_U = Money Supply Uncertainty, GDP_U = GDP Growth Uncertainty, INFL_U = Inflation Uncertainty, EXR_U = Exchange Rate Uncertainty, FD_U = Financial Development Uncertainty, TOT_U = Terms of Trade Uncertainty, TO_U = Trade Openness Uncertainty, LnCO2 = Natural Log of CO2 Emissions, RQ = Regulatory Quality.