FOREIGN DIRECT INVESTMENT AND ENVIRONMENTAL POLLUTION IN SELECTED COUNTRIES IN AFRICA: DOES LEVEL OF GOVERNANCE MATTER?

Abstract

This study was undertaken to examine the effect of FDI on environmental pollution in selected countries with weak and strong governance structures in Africa. Ten countries were chosen from each category, while the time series variants is from 1990 to 2020. Bai and Ng Unit Root and CIPS Unit Root test were used for the panel unit root test. Westerlund Panel co-integration technique was used to examine the long run relationship among the variables. Feasible generalized least square (FGLS) was used to estimate the effect of FDI on environmental pollution in each group of countries. The result implies that the effect of FDI inflows is positive and significant in countries with governance structures, but it is insignificant in countries with strong governance structures. This implies that the pollution hypothesis is valid. In order words, it confirms that the pollution hypothesis holds in Africa. More so, the effect of FDI inflows on environmental pollution is higher in countries with weak governance structures than it is in countries with strong governance structures. It is recommended that African countries with weak governance structure should implement strong laws that will help regulate the acclivities of multinationals in their various countries.