Does foreign direct investment impede forest area in Sub-Saharan Africa?

Abstract

Foreign direct investment is an engine of economic growth. However, it may affect environmental quality (improve or deteriorate it), depending on the context. Under a multivariate framework, this paper aims to investigate the relationship between foreign direct investment and deforestation for Sub-Sahara African countries with economic growth, trade openness and urbanization as additional determinants of deforestation. The analyses reveal that all variables are non-stationary and cointegrated based on recent panel data techniques. On applying dynamic ordinary least squares, the long-run results suggest the validity of the pollution haven hypothesis for some countries, and that of the pollution halo hypothesis for other countries. The findings are also mixed across Sub-Sahara African countries for trade openness and urbanization. The results from this study suggest that Sub-Sahara African countries should continue attracting foreign direct investment, while a certain number of them should put more emphasis on controlling deforestation associated with foreign direct investment inflows to limit greenhouse gas concentrations in the atmosphere.