Investigating the pollution haven hypothesis in the top-5 FDI recipient countries in Africa: Evidence from...

In recent decades, industrial expansion has become a priority for many African countries, often advancing under less stringent environmental regulations. This trend has exacerbated pollution levels and biodiversity loss, posing significant threats to the continent long-term sustainability. This study contributes to the discourse on environmental economics by examining the Pollution Haven Hypothesis (PHH) within Africa, using panel data from 1970 to 2022 for the five leading recipients of Foreign Direct Investment (FDI). Departing from previous methodologies, it adopts heterogeneous panel data modeling that integrate both sharp and gradual structural shifts through the recently developed Fourier Seemingly Unrelated Regressions Mean Group (F-SURMG) estimator. This refined approach effectively tackles heterogeneity, structural shift, and cross-sectional dependence, ensuring a more comprehensive and robust estimation of the relationship between FDI and environmental degradation, as measured by the ecological footprint (EFP). The results reveal that FDI inflows significantly contribute to environmental degradation in Africa, supporting the PHH. Specifically, the F-SURMG estimates indicate that a 1 % increase in FDI leads to a 1.2 % rise in EFP. However, country-specific effects vary widely. While Nigeria and Kenya exhibit a strong positive influence between FDI and EFP, Egypt, Morocco, and South Africa show no statistically significant impact, likely due to higher GDP per capita, renewable energy adoption, and increasingly stringent regulatory frameworks. To enhance environmental sustainability in FDI-driven African economies, policymakers must tighten industrial emission regulations to ensure foreign investors comply with environmental standards. Offering tax incentives for green investments can redirect FDI toward sustainable sectors, promoting eco-friendly industrial expansion.