Financial sector-foreign direct investment-carbon emissions nexus in selected African countries
Keywords:
Financial Sector; Foreign Direct Investment; Panel Data; Selected African CountriesAbstract
Using dynamic generalized methods of moments (GMM), pooled ordinary least squares (OLS), fixed effects and random effects with panel data ranging from 2005 to 2018, this study had two main objectives. Firstly, to investigate the impact of financial development and or foreign direct investment on carbon emissions in selected African countries. Secondly, the explore the influence of the complementarity between financial development and foreign direct investment on carbon emissions in selected African countries. Financial development was found to have had positively and significantly influenced carbon emissions in selected African countries under the dynamic GMM only. Foreign direct investment’s impact on carbon emissions was observed to be negative and significant also under the dynamic GMM approach. Across all the four econometric methods used in this study, the complementarity between financial development and foreign direct investment had a significant negative influence on carbon emissions in selected African countries. African countries need to ensure that its financial sector avails loans and financial resources towards promoting the use of clean energy and acquisition of new efficient technology that emits less carbon dioxide. They also need to implement policies which attracts foreign investors which are environmentally friendly in their day to day manufacturing and industrial activities. Further studies need to investigate threshold levels above which financial development begins to significantly increase carbon emissions in selected African countries. Future studies can also examine the threshold levels above which foreign direct investment begins to significantly reduce carbon emissions in selected African countries.
References
1. Aye, G.C. and Edoja, P.E. (2017). Effect of economic growth on C02 emission in developing countries: Evidence from a dynamic panel threshold model. Cogent Economics and Finance, 5 (1), 1-22.
2. Blanco, L. Gonzalez, F. and Ruiz, I. (2013). The impact of FDI on C02 emissions in Latin America. Oxford Development Studies, 41(1), 104-121.
3. Cheng, S. and Yang, Z. (2016). The effects of FDI on carbon emissions in China: Based on spatial econometric model. Revista de la Facultad de Ingenieria U.C.V., 31(6), 137-149.
4. Chenran, X. Limao, W. Chengjia, Y. Qiushi, Q. and Ning, X. (2019). Measuring the effect of foreign direct investment on carbon emissions in Laos. Journal of Resources and Ecology, 10(6), 685-691
5. Eriandani, R. Anam, S. Prastiwi, D and Triani, N.N.A. (2020). The impact of foreign direct investment on carbon emissions in ASEAN countries. International Journal of Energy Economics and Policy, 10(5), 584-592
6. Frankel, J. and Rose, A. (2002). An estimate of the effect of common currencies on trade and income, Quarterly Journal of Economics, 117 (2), 437-466.
7. Grossman, G.M. and Krueger, A.B. (1991). Environmental impacts of a North American free trade agreement. National Bureau of Economic Research, Working Paper Number 3914.
8. Gok, A. (2020). The role of financial development on carbon emissions: A meta regression analysis, Environmental Science Pollution Research, 27, 11618-11636.
9. Hasan, H. Oudat, M.S. Alsmad, A.A. Nurfahasdi, M. and Ali, B.J.A. (2021). Investigating the causal relationship between financial development and carbon emissions in the emerging country, Journal of Governance and Regulation, 10 (2), 55-62.
10. Huang, Y. Chen, X. Zhu, H. Huang, C. and Tian, Z. (2019). The heterogeneous effects of FDI and foreign trade on carbon emissions: Evidence from China, Mathematical Problems in Engineering. https://doi.org/10.1155/2019/9612492
11. Im, K.S. Pesaran, M.H. and Shin, Y. (2003). Testing unit roots in heterogeneous panels, Journal of Econometrics, 115(1), 53-74.
12. Jiang, C. and Ma. X. (2019). The impact of financial development on carbon emissions: A global perspective, Sustainability, 11 (5241), 1-22
13. Kao, C. (1999). Spurious regression and residual-based tests for co-integration in panel data, Journal of Econometrics, 90 (1999), 247-259.
14. Kaya, G. Kayalica, M.O. Kumas, M. and Ulengin, B. (2017). The role of foreign direct investment and trade on carbon emissions in Turkey. Environmental Economics, 8 (1), 8-17
15. Kivyiro, P. and Arminen, H. (2014). Carbon dioxide emissions, energy consumption, economic growth, and foreign direct investment: Causality analysis for Sub-Saharan Africa. Energy, 74, 595–606
16. Kwakwa, P.A. (2020). Energy consumption, financial development and carbon dioxide emissions: A moderating analysis for the manufacturing and construction sectors, The Journal of Energy and Development, 45 (1-2), 175-196.
17. Levin, A. Lin, C.F. and Chu, C.S.J. (2002), Unit root tests in panel data: Asymptotic and finite-sample properties, Journal of Econometrics, 108 (1), 1-24.
18. Mahadevan, R. and Sun, Y. (2020). Effects of foreign direct investment on carbon emissions: Evidence from China and its Belt and Road countries. Journal of Environmental Management, 276, 1-32.
19. Marques, A.C. and Caetano, R. (2020). The impact of foreign direct investment on emission reduction targets: Evidence from high and middle-income countries. Structural Change and Economic Dynamics, 55, 107-118.
20. Mazzanti, M. Montini, A. and Zoboli, R. (2006). Economic dynamics, emission trends and the EKC new evidence using NAMEA and provincial panel data for Italy. Universita Degli Studi di Ferrara, Quaderno Number 19/2006.
21. Mugableh, M.I. (2015). Economic growth, C02 emissions and financial development in Jordan: Equivalent and dynamic causality analysis, International Journal of Economics and Finance, 7 (7), 98-105.
22. Ngonadi, J.C. Huaping, S. Okere, J. and Oguegbu, C. (2020). Examining the impact of foreign direct investment on offshore carbon emissions in the Sub-Saharan Africa. European Journal of Business and Management Research, 5 (1), 1-12
23. Olubusoye, O.E. Musa, D. Ercolano, S. (2020). Carbon emissions and economic growth in Africa: Are they related? Cogent Economics and Finance, 8 (1), 1-21
24. Omri, A, Daly, S. Rault, C, and Chaibi, A. (2015). Financial development, environmental quality and economic growth: What causes what in MENA countries. Institute for the Study of Labour Discussion Paper Series Number 8868, 1-32.
25. Piaggio, M. and Padilla, E. (2012). C02 emissions and economic activity: heterogeneity across countries and non-stationary series. Energy Policy, 46 (July), 370-381.
26. Sasana, H. Sugiharti, R.R. and Setyaningsih, Y. (2018). The impact of foreign direct investment to the quality of the environment in Indonesia. E3S Web of Conferences, 73, 1-5.
27. Shoaib, H.M. Rafique, M.Z. Nadeem, AM. and Huang, S. (2020). Impact of financial development on carbon emissions: A comparative analysis of developing countries and developed countries. Environmental Science and Pollution Research International, 27 (11), 12461-12475
28. Sung, B. Song, W. Park, S. (2018). How foreign direct investment affects carbon emissions levels in the Chinese manufacturing industry: Evidence from panel data. Economic Systems, 42 (2), 320-331.
29. Tembo, J. (2018). Regional financial integration and its impact on financial sector development: The case of Southern Africa, Unpublished Doctoral Thesis, University of South Africa.
30. Toyin, O.O. (2017). The impact of economic and financial development on carbon emissions : evidence from Sub-Saharan Africa, University of South Africa, Pretoria, http://hdl.handle.net/10500/23220
31. Tsaurai, K. (2019). The impact of financial development on carbon emissions in Africa. International Journal of Energy Economics and Policy, 9 (3), 144-153.
32. Wang, Y. Liao, M. Wang, Y. Xu, L. and Malik, A. (2021). The impact of Foreign direct investment on China’s carbon emissions through energy intensity and emissions trading system. Energy Economics, 97 (May), 35-61.
33. Xing, T. Jiang, Q. and Ma, X. (2017). To facilitate or curb? The role of financial development in China’s carbon emissions reduction process: A Novel Approach. International Journal of Environmental Research and Public Health, 14 (10), 1-39.
34. Xiong, L. and Qi, S. (2018). Financial development and carbon emissions in Chinese provinces: A spatial panel data analysis. The Singapore Economic Review, 63 (2), 447-464.
35. Yuxiang, K. and Chen, Z. (2010). Financial development and environmental performance: Evidence from China. Environment and Development Economics, 16 (1), 1-19.
36. Zhang, Y. (2011). The impact of financial development on carbon emissions: An empirical analysis in China. Energy Policy, 39 (4), 2197-2203.
37. Zou, S. and Zhang, T (2020). CO2 emissions, energy consumption and economic growth nexus: Evidence from 30 provinces in China. Mathematical Problems in Engineering, https://doi.org/10.1155/2020/8842770
2. Blanco, L. Gonzalez, F. and Ruiz, I. (2013). The impact of FDI on C02 emissions in Latin America. Oxford Development Studies, 41(1), 104-121.
3. Cheng, S. and Yang, Z. (2016). The effects of FDI on carbon emissions in China: Based on spatial econometric model. Revista de la Facultad de Ingenieria U.C.V., 31(6), 137-149.
4. Chenran, X. Limao, W. Chengjia, Y. Qiushi, Q. and Ning, X. (2019). Measuring the effect of foreign direct investment on carbon emissions in Laos. Journal of Resources and Ecology, 10(6), 685-691
5. Eriandani, R. Anam, S. Prastiwi, D and Triani, N.N.A. (2020). The impact of foreign direct investment on carbon emissions in ASEAN countries. International Journal of Energy Economics and Policy, 10(5), 584-592
6. Frankel, J. and Rose, A. (2002). An estimate of the effect of common currencies on trade and income, Quarterly Journal of Economics, 117 (2), 437-466.
7. Grossman, G.M. and Krueger, A.B. (1991). Environmental impacts of a North American free trade agreement. National Bureau of Economic Research, Working Paper Number 3914.
8. Gok, A. (2020). The role of financial development on carbon emissions: A meta regression analysis, Environmental Science Pollution Research, 27, 11618-11636.
9. Hasan, H. Oudat, M.S. Alsmad, A.A. Nurfahasdi, M. and Ali, B.J.A. (2021). Investigating the causal relationship between financial development and carbon emissions in the emerging country, Journal of Governance and Regulation, 10 (2), 55-62.
10. Huang, Y. Chen, X. Zhu, H. Huang, C. and Tian, Z. (2019). The heterogeneous effects of FDI and foreign trade on carbon emissions: Evidence from China, Mathematical Problems in Engineering. https://doi.org/10.1155/2019/9612492
11. Im, K.S. Pesaran, M.H. and Shin, Y. (2003). Testing unit roots in heterogeneous panels, Journal of Econometrics, 115(1), 53-74.
12. Jiang, C. and Ma. X. (2019). The impact of financial development on carbon emissions: A global perspective, Sustainability, 11 (5241), 1-22
13. Kao, C. (1999). Spurious regression and residual-based tests for co-integration in panel data, Journal of Econometrics, 90 (1999), 247-259.
14. Kaya, G. Kayalica, M.O. Kumas, M. and Ulengin, B. (2017). The role of foreign direct investment and trade on carbon emissions in Turkey. Environmental Economics, 8 (1), 8-17
15. Kivyiro, P. and Arminen, H. (2014). Carbon dioxide emissions, energy consumption, economic growth, and foreign direct investment: Causality analysis for Sub-Saharan Africa. Energy, 74, 595–606
16. Kwakwa, P.A. (2020). Energy consumption, financial development and carbon dioxide emissions: A moderating analysis for the manufacturing and construction sectors, The Journal of Energy and Development, 45 (1-2), 175-196.
17. Levin, A. Lin, C.F. and Chu, C.S.J. (2002), Unit root tests in panel data: Asymptotic and finite-sample properties, Journal of Econometrics, 108 (1), 1-24.
18. Mahadevan, R. and Sun, Y. (2020). Effects of foreign direct investment on carbon emissions: Evidence from China and its Belt and Road countries. Journal of Environmental Management, 276, 1-32.
19. Marques, A.C. and Caetano, R. (2020). The impact of foreign direct investment on emission reduction targets: Evidence from high and middle-income countries. Structural Change and Economic Dynamics, 55, 107-118.
20. Mazzanti, M. Montini, A. and Zoboli, R. (2006). Economic dynamics, emission trends and the EKC new evidence using NAMEA and provincial panel data for Italy. Universita Degli Studi di Ferrara, Quaderno Number 19/2006.
21. Mugableh, M.I. (2015). Economic growth, C02 emissions and financial development in Jordan: Equivalent and dynamic causality analysis, International Journal of Economics and Finance, 7 (7), 98-105.
22. Ngonadi, J.C. Huaping, S. Okere, J. and Oguegbu, C. (2020). Examining the impact of foreign direct investment on offshore carbon emissions in the Sub-Saharan Africa. European Journal of Business and Management Research, 5 (1), 1-12
23. Olubusoye, O.E. Musa, D. Ercolano, S. (2020). Carbon emissions and economic growth in Africa: Are they related? Cogent Economics and Finance, 8 (1), 1-21
24. Omri, A, Daly, S. Rault, C, and Chaibi, A. (2015). Financial development, environmental quality and economic growth: What causes what in MENA countries. Institute for the Study of Labour Discussion Paper Series Number 8868, 1-32.
25. Piaggio, M. and Padilla, E. (2012). C02 emissions and economic activity: heterogeneity across countries and non-stationary series. Energy Policy, 46 (July), 370-381.
26. Sasana, H. Sugiharti, R.R. and Setyaningsih, Y. (2018). The impact of foreign direct investment to the quality of the environment in Indonesia. E3S Web of Conferences, 73, 1-5.
27. Shoaib, H.M. Rafique, M.Z. Nadeem, AM. and Huang, S. (2020). Impact of financial development on carbon emissions: A comparative analysis of developing countries and developed countries. Environmental Science and Pollution Research International, 27 (11), 12461-12475
28. Sung, B. Song, W. Park, S. (2018). How foreign direct investment affects carbon emissions levels in the Chinese manufacturing industry: Evidence from panel data. Economic Systems, 42 (2), 320-331.
29. Tembo, J. (2018). Regional financial integration and its impact on financial sector development: The case of Southern Africa, Unpublished Doctoral Thesis, University of South Africa.
30. Toyin, O.O. (2017). The impact of economic and financial development on carbon emissions : evidence from Sub-Saharan Africa, University of South Africa, Pretoria, http://hdl.handle.net/10500/23220
31. Tsaurai, K. (2019). The impact of financial development on carbon emissions in Africa. International Journal of Energy Economics and Policy, 9 (3), 144-153.
32. Wang, Y. Liao, M. Wang, Y. Xu, L. and Malik, A. (2021). The impact of Foreign direct investment on China’s carbon emissions through energy intensity and emissions trading system. Energy Economics, 97 (May), 35-61.
33. Xing, T. Jiang, Q. and Ma, X. (2017). To facilitate or curb? The role of financial development in China’s carbon emissions reduction process: A Novel Approach. International Journal of Environmental Research and Public Health, 14 (10), 1-39.
34. Xiong, L. and Qi, S. (2018). Financial development and carbon emissions in Chinese provinces: A spatial panel data analysis. The Singapore Economic Review, 63 (2), 447-464.
35. Yuxiang, K. and Chen, Z. (2010). Financial development and environmental performance: Evidence from China. Environment and Development Economics, 16 (1), 1-19.
36. Zhang, Y. (2011). The impact of financial development on carbon emissions: An empirical analysis in China. Energy Policy, 39 (4), 2197-2203.
37. Zou, S. and Zhang, T (2020). CO2 emissions, energy consumption and economic growth nexus: Evidence from 30 provinces in China. Mathematical Problems in Engineering, https://doi.org/10.1155/2020/8842770
Published
2021-10-26
How to Cite
Tsaurai, K. (2021). Financial sector-foreign direct investment-carbon emissions nexus in selected African countries: Array. Acta Universitatis Danubius. Œconomica, 17(6). Retrieved from https://dj.univ-danubius.ro/index.php/AUDOE/article/view/1387
Issue
Section
Financial Economics
License
The author fully assumes the content originality and the holograph signature makes him responsible in case of trial.
