Threshold Effects of Inward Foreign Direct Investment and Growth on Environmental Sustainability in Africa
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The study explores the thresholds of inward foreign direct investment and per capita income on environmental sustainability in Africa. The study is motivated by Africa’s rising contribution to the global carbon emission rate at 4.6% per annum and the projection to exceed 30% in 2030, which threatens global sustainability. The ex-post facto research design guided us in collecting panel data for African countries between 1990 and 2019. The Environmental Kuznets Curve and Pollution Haven Hypothesis underpinned our models, which are analyzed using the Bai-Perron Panel Threshold Regression technique. The Bai-Perron Panel Threshold Regression results established that inward foreign direct investment positively impacts environmental degradation. Also, at the initial stage of growth carbon emission increases, and the growth rate beyond the turning point leads to a decline in carbon emission. However, we did not validate the Environmental Kuznets Curve since the coefficient of the second-order polynomial was not statistically significant. Further, we established the thresholds of $21,890 per capita gross domestic product and $3,941.12 per capita foreign direct investment values are needed to attain long-run environmental sustainability objectives in Africa. We suggest that policymakers formulate specific growth, foreign direct investment, trade and finance policies guided by the established thresholds of $21,890 per capita gross domestic product and $3,941.12 per capita foreign direct investment value to attain long-run environmental sustainability objectives. These can be driven by sustained green growth and cleaner foreign direct investment attraction strategies that are mindful of Africa’s environmental limits. We developed five empirical models to estimate the turning points, which the few empirical studies on Africa’s environmental sustainability drive were not interested in despite its tremendous policy significance.
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