Spatial impact of foreign direct investment on ecological footprint in Africa

Abstract

This study examines the spatial impact of FDI on ecological footprint of 31 African countries. In achieving this, the study uses the Driscoll-Kraay (1998) random effect model, fixed-effect instrumental variable regression, and the spatial Durbin model. There are three main important findings from this empirical study. First, FDI has a nonlinear impact on ecological footprint in Africa. At the initial stage, FDI reduces ecological footprint up to a threshold of $404.75-$669.96 million, before the impact increases ecological degradation. This result is robust to the instrumental regression model. Second, the results further reveal a significant spatial spillover of FDI on ecological footprint in Africa. Third, the empirical results provide evidence of both direct and spillover effects of environmental degradation determinant in Africa. This denotes that environmental quality of a particular country influences the environmental quality of other neighbouring countries. While it is important to attract significant amount of foreign investment to Africa, this study recommends that African governments need to improve their environmental regulations and laws to achieve transfer of energy-saving technology from foreign investors.

Keywords: Africa; Driscoll-Kraay random-effect model; Ecological footprint; FDI; Fixed-effect instrumental variable regression; Spatial Durbin model.