Carbon tax adoption and foreign direct investment: Evidence from Africa

Figures & data

Table 1. Variable definitions, summary statistics, and computations.

Variable	Indicator Name	Mean	SD	Source/Computation
fdi	Foreign direct investment, (the value of net inflows calculated as a % of GDP)	3.98	8.264	WDI
gdp	GDP per capita (log)	4.65	7.165	WDI
trade	Trade (value of net trade calculated as a % of GDP)	1.798	0.199	WDI
edu	Education: number of secondary school enrollment, (log)	32.613	18.26	WDI
rule	Rule of law index ranging from 1 (low) to 6 (high)	2.684	0.69	WDI
inv	Domestic investment (calculated as a % of GDP)	22.239	9.734	WDI
maxct	Maximum carbon tax	5.512	2.5	Tax rate multiplied by $25/ton
minct	minimum carbon tax	0.441	0.2	Tax rate multiplied by $3/ton
mltct	most likely carbon tax	1.874	0.85	Tax rate multiplied by $8.5/ton
indexct	Index of carbon	0.9	1.732	Generated using principal component analysis (PCA) from the three proxies of the carbon tax (maxct, minct, mlct).
maxctrev	Maximum carbon tax revenue (log)	9.305	1.84	Maxct multiplied by CO2 emission
mlctrev	Minimum carbon tax revenue (log)	6.779	1.84	Minct multiplied by CO2 emission
minctrev	Most likely carbon tax revenue (log)	6.779	1.84	Mltct multiplied by CO2 emission
indexctrev	Index of carbon tax revenue	1.5	1.732	Generated using principal component analysis (PCA) from the three proxies of carbon tax revenue.

(Source: Authors’ computations).

Table 2. Effect of carbon tax index and carbon tax revenue index on FDI.

	(1)	(2)	(3)	(4)	(5)
Variables	Pooled OLS: Upper Bound	Fixed Effect: Lower Bound	Two-Step System GMM	Baseline Two-Step Difference GMM	Baseline With Carbon tax revenue
l.fdi	0.471***	0.312***	0.173***	0.342***	0.344***
	(0.032)	(0.034)	(0.0495)	(0.017)	(0.0209)
indexct	−0.0767	0.0165	−3.148*	−0.377**	0.581*
	(0.0874)	(0.193)	(1.664)	(0.164)	(0.307)
gdp	0.0129	0.0195	0.171***	0.036***	0.00202
	(0.0367)	(0.0379)	(0.0501)	(0.011)	(0.0162)
trade	1.869	−2.118	28.28	−1.005	1.724
	(1.294)	(2.566)	(23.95)	(1.581)	(1.956)
edu	0.00480	0.100***	−0.101	0.0796***	0.132**
	(0.0127)	(0.0349)	(0.102)	(0.023)	(0.0595)
rule	0.514	1.121*	7.604**	1.079***	1.280***
	(0.349)	(0.643)	(3.422)	(0.268)	(0.412)
inv	0.120***	0.194***	0.202**	0.160***	0.196***
	(0.0255)	(0.0357)	(0.100)	(0.016)	(0.0207)
indexctrev					−2.893***
					(0.630)
Constant	−6.006**	−6.232	−70.00	–	–
	(2.556)	(5.684)	(48.66)	–	–
Year dummies	yes	yes	yes	yes	Yes
Observations	1,032	1,032	1,032	1,032	1,032
Number of Countries	43	43	43	43	43
Number of Instruments	–		24	24	26
R-squared	0.347	0.288	–	–	–
AR(1)	–	–	0.062	0.024	0.208
AR(2)	–	–	0.427	0.481	0.405
Hansen	–	–	0.224	0.371	0.385
Andrews-Lu model and moment selection criteria
Akaike (AIC)			−0.0012	−0.0018	–
Bayesian (BIC)			−0.0025	−0.0033	–
Hannan-Quinn (HQIC)			−0.0017	−0.0024	–

Robust Standard errors in parentheses.

***p < 0.01, **p < 0.05, *p < 0.1.

(Source: Authors’ computations).

Table 3. Effect of different carbon tax values on FDI.

	(6)	(7)	(8)	(9)	(10)	(11)
Variables	fdi	fdi	fdi	fdi	fdi	Fdi
L.fdi	0.342***	0.344***	0.339***	0.348***	0.339***	0.349***
	(0.0167)	(0.0209)	(0.0166)	(0.0243)	(0.0165)	(0.0238)
mlct	−0.758**	1.192*
	(0.333)	(0.621)
mlctrev		−2.731***
		(0.590)
maxct			−0.231**	0.385
			(0.0962)	(0.252)
maxctrev				−2.409***
				(0.560)
minct					−2.828**	4.966
					(1.200)	(3.067)
minctrev						−2.442***
						(0.558)
gdp	0.0360***	0.00220	0.0373***	0.0139	0.0374***	0.0139
	(0.0105)	(0.0162)	(0.0101)	(0.0130)	(0.0101)	(0.0128)
trade	−1.037	1.719	−1.122	−0.893	−1.113	−0.992
	(1.583)	(1.954)	(1.618)	(2.105)	(1.618)	(2.118)
edu	0.0793***	0.133**	0.0810***	0.0787	0.0808***	0.0791
	(0.0228)	(0.0595)	(0.0241)	(0.0537)	(0.0241)	(0.0516)
rule	1.072***	1.279***	1.107***	1.606***	1.102***	1.605***
	(0.267)	(0.410)	(0.268)	(0.450)	(0.268)	(0.432)
inv	0.161***	0.196***	0.159***	0.203***	0.159***	0.203***
	(0.0158)	(0.0207)	(0.0154)	(0.0173)	(0.0155)	(0.0173)
Year dummies	yes	yes	yes	yes	yes	Yes
Observations	1,032	1,032	1,032	1,032	1,032	1,032
No. of Countries	43	43	43	43	43	43
No. of Instruments	25	28	28	28	28	28
AR(1)	0.098	0.082	0.112	0.115	0.158	0.163
AR(2)	0.549	0.519	0.465	0.548	0.510	0.564
Hansen	0.327	0.347	0.335	0.268	0.315	0.250

Robust Standard errors in parentheses.

***p < 0.01, **p < 0.05, *p < 0.1.

(Source: Authors’ computations).

Table A1. Effect of carbon tax and carbon tax revenue on FDI among Low tax regime countries.

	(12)	(13)	(14)	(15)	(16)	(17)	(18)	(19)
VARIABLES	fdi	fdi	fdi	fdi	fdi	fdi	fdi	fdi
L.fdi	0.379***	0.249***	0.379***	0.249***	0.379***	0.249***	0.379***	0.248***
	(0.00592)	(0.00608)	(0.00592)	(0.00601)	(0.00592)	(0.00610)	(0.00592)	(0.00613)
indexct	−0.423***	3.146***
	(0.0898)	(0.412)
indexctrev		−5.952***
		(0.223)
mlct			−0.862***	6.406***
			(0.183)	(0.831)
mlctrev				−5.601***
				(0.210)
maxct					−0.293***	2.170***
					(0.0622)	(0.285)
maxctrev						−5.590***
						(0.209)
minct							−3.663***	27.41***
							(0.778)	(3.593)
minctrev								−5.615***
								(0.220)
Controls	yes	yes	yes	yes	yes	yes	yes	yes
Year dummies	yes	yes	yes	yes	yes	yes	yes	yes
Observations	539	539	539	539	539	539	539	539
Number of i	35	35	35	35	35	35	35	35
No. of Instruments	29	30	29	30	29	30	29	30
AR(1)	0.267	0.266	0.267	0.267	0.267	0.266	0.267	0.266
AR(2)	0.318	0.333	0.318	0.333	0.318	0.332	0.318	0.332
Hansen	0.287	0.207	0.287	0.208	0.287	0.209	0.287	0.204

Robust Standard errors in parentheses ***p < 0.01, **p < 0.05, *p < 0.1.

Table A2. Effect of carbon tax and carbon tax revenue on FDI among High tax regime countries.

	(20)	(21)	(22)	(23)	(24)	(25)	(26)	(27)
VARIABLES	fdi	fdi	fdi	fdi	fdi	fdi	fdi	fdi
L.fdi	0.228***	0.219***	0.228***	0.219***	0.228***	0.217***	0.228***	0.219***
	(0.00132)	(0.00581)	(0.00132)	(0.00581)	(0.00132)	(0.00347)	(0.00133)	(0.00584)
indexct	−0.903***	−0.927***
	(0.00749)	(0.0248)
indexctrev		0.113***
		(0.0252)
mlct			−1.840***	−1.889***
			(0.0153)	(0.0505)
mlctrev				0.108***
				(0.0237)
maxct					−0.626***	−0.641***
					(0.00520)	(0.0173)
maxctrev						0.118***
						(0.0122)
minct							−7.817***	−8.027***
							(0.0646)	(0.216)
minctrev								0.105***
								(0.0238)
Controls	yes	yes	yes	yes	yes	yes	yes	yes
Year dummies	yes	yes	yes	yes	yes	yes	yes	yes
Observations	373	373	373	373	373	373	373	373
Number of i	30	30	30	30	30	30	30	30
No. of Instruments	29	30	29	30	29	30	29	30
AR(1)	0.119	0.120	0.119	0.120	0.119	0.120	0.119	0.120
AR(2)	0.273	0.282	0.273	0.282	0.273	0.288	0.273	0.282
Hansen	0.326	0.397	0.326	0.397	0.326	0.392	0.324	0.395

Robust Standard errors in parentheses ***p < 0.01, **p < 0.05, *p < 0.1.

Table A3. Pairwise correlations matrix results.

Variables	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
(1) fdi	1.000
(2) gdp	0.314	1.000
(3) trade	0.188	−0.058	1.000
(4) edu	0.069	−0.036	0.369	1.000
(5) rule	0.156	0.172	−0.051	0.139	1.000
(6) inv	0.295	0.126	0.409	0.077	0.290	1.000
(7) indexct	−0.004	0.009	0.006	0.215	0.292	0.019	1.000
(8) indexctrev	−0.067	−0.014	0.061	0.179	0.150	0.134	0.671	1.000

(Source: Authors’ computations).

Table A4. Variance inflation factor (VIF) test for Multicollinearity.

Variable	VIF	1/VIF
indexct	2.05	0.488900
indexctrev	1.91	0.524361
trade	1.51	0.664428
inv	1.47	0.682188
rule	1.32	0.756266
edu	1.27	0.789073
gdp	1.05	0.952674
Mean VIF	1.51

(Source: Authors’ computations).

Table A5. Breusch-Pagan/Cook-Weisberg test for heteroskedasticity.

Dependent variable	Assumption	F.statistics	p-value
fdi	Constant variance	21.40	0.0000

(Source: Authors’ computations).

Table A6. Levin-Lin-Chu unit-root test.

Variable	Statistics		p-value
	Unadjusted	Adjusted
fdi	−14.7709	−7.2305	0.0000
gdp	−19.0461	−8.7226	0.0000
l.fdi	−14.6870	−7.3529	0.0000
l.gdp	−19.0035	−8.8871	0.0000
indexct	−0.0909	0.0385	0.4846
indexctrev	−6.7437	−3.2833	0.0005
trade	−9.1467	−1.2629	0.1033
edu	0.3144	0.3428	0.6341
rule	−7.7e + 03	−8.4e + 03	0.0000
inv	−9.2828	−2.1475	0.0159
mlct	0.3551	0.4739	0.6822
maxct	0.2026	0.2325	0.5919
minct	0.1567	0.1778	0.5706
mlctrev	−6.7749	−3.3206	0.0004
maxctrev	−6.7433	−3.2757	0.0005
minctrev	−6.7128	−3.2485	0.0006

(Source: Authors’ computations).