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Foreign direct investment and environmental sustainability in Africa: The role of institutions and governance

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  • Bokpin, Godfred A.

Abstract

The African continent continues to explore more avenues to increasing its share of the global FDI inflows. In the midst of all these, very little has been said about how FDI among others contribute to the environmental degradation of the continent. Literature is sparse when it comes to how eco-unfriendly FDI flows could be, albeit it’s economic growth prowess. In this very study, we employ the use of a 24 year panel data (1990–2013) across Africa to investigate the impact of FDI inflows on the eco-system in order to situate Africa’s FDI flows within the sustainability development agenda popularized in the 80s. For the first time, we investigate how governance and institutions may regulate the impact of FDI on environmental sustainability. We do this conscious of the fact that other factors could also impact negatively on Africa’s eco-system which we control for in the empirical model. The empirical results compositely reveal an increase in FDI inflows significantly increases environmental degradation; hence causing a negative impact on sustainability of the environment. Year dummies indicate that environmental degradation in the post 2010 era is greater than degradation in 1990 which was used as the reference point. The study affirmed that, for FDI to have a positive impact on environmental sustainability, there need to be strong governance and quality institutions in place to check the conduct of businesses financed through the FDI flows. The study provides empirical evidence to anchor governance and institutional policy prescriptions towards reducing the negative impact of FDI flows on environmental sustainability within the sustainable development preposition.

Suggested Citation

  • Bokpin, Godfred A., 2017. "Foreign direct investment and environmental sustainability in Africa: The role of institutions and governance," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 239-247.
    • Handle: RePEc:eee:riibaf:v:39:y:2017:i:pa:p:239-247
    DOI: 10.1016/j.ribaf.2016.07.038
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    15. Opperman, Pieter & Adjasi, Charles Komla Delali, 2017. "The determinants of private capital flow volatility in Sub-Saharan African countries," Research in International Business and Finance, Elsevier, vol. 42(C), pages 312-320.
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    18. Abderrazek Ben Hamouda, 2023. "On the Link Between FDI, Political Risk and Economic Growth in Sub-Saharan Africa: A Panel VAR Approach," Journal of Economic Impact, Science Impact Publishers, vol. 5(2), pages 171-180.
    19. Khan, Hamad Hasul & Khan, Oshin, 2018. "Income-FDI-Environmental degradation nexus for developing countries: A panel analysis of America continent," MPRA Paper 88154, University Library of Munich, Germany.
    20. Shazia Kousar & Farhan Ahmed & María de las Nieves López García & Nimra Ashraf, 2020. "Renewable Energy Consumption, Water Crises, and Environmental Degradation with Moderating Role of Governance: Dynamic Panel Analysis under Cross-Sectional Dependence," Sustainability, MDPI, vol. 12(24), pages 1-16, December.
    21. Abdelmohsen A. Nassani & Muhammad Moinuddin Qazi Abro & Rubeena Batool & Syed Haider Ali Shah & Shabir Hyder & Khalid Zaman, 2021. "Go‐for‐green policies: The role of finance and trade for sustainable development," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 1409-1423, January.
    22. Song, Wenfei & Han, Xianfeng, 2022. "The bilateral effects of foreign direct investment on green innovation efficiency: Evidence from 30 Chinese provinces," Energy, Elsevier, vol. 261(PB).
    23. Slimani, Sana & Omri, Anis & Abbassi, Abdessalem, 2024. "International capital flows and sustainable development goals: The role of governance and ICT diffusion," Socio-Economic Planning Sciences, Elsevier, vol. 93(C).
    24. Olga Masyutina & Ekaterina Paustyan & Grigory Yakovlev, 2022. "Environmental Politics in Authoritarian Regimes: Waste Management in the Russian Regions," Bremen Papers on Economics & Innovation 2206, University of Bremen, Faculty of Business Studies and Economics.

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