Dependence Between Foreign Direct Investment and Carbon Dioxide Emissions in East Africa: Bivariate Distributional Copula Regression Technique

Environmental concerns have become more prominent as the global economy has grown faster, impeding sustained economic growth at high standards. Cross-border foreign direct investment (FDI) has played a pivotal role in economic growth, but it has also significantly contributed to environmental pollution in many host nations. Linear regression models have limitations in capturing the complex bi-directional transmission pathways involved. Various factors, including economic growth, electricity consumption, urban population, labor force, exports, and imports, can influence the relationship between carbon dioxide emissions and foreign direct investments. This research employs distributional copula models to ascertain the conditional relationship between FDI and carbon dioxide emissions. The study analyzes data from six East African countries from 1989 to 2020 to quantify their impacts. The findings indicate that FDI is associated with reduced CO2 emissions. Furthermore, the study investigates how economic growth moderates this relationship, utilizing the feasible generalized least squares (FGLS) method. The findings reveal that carbon emissions in East Africa tend to increase with economic expansion, while FDI shows a negative correlation with CO2 emissions. These results underscore the importance of encouraging and incentivizing investments that prioritize environmental sustainability, such as those in renewable energy and energy-efficient infrastructure.