Trade and FDI Thresholds of CO2 emissions for a Green Economy in Sub-Saharan Africa

Asongu, Simplice and Odhiambo, Nicholas (2020): Trade and FDI Thresholds of CO2 emissions for a Green Economy in Sub-Saharan Africa. Forthcoming in: International Journal of Energy Sector Management

Abstract

This research focuses on assessing how improving openness influences CO2 emissions in Sub-Saharan Africa. It is based on 49 countries in SSA for the period 2000-2018 divided into: (i) 44 countries in SSA for the period 2000-2012; and (ii) 49 countries for the period 2006-2018. Openness is measured in terms of trade and foreign direct investment (FDI) inflows. The empirical evidence is based on the Generalised Method of Moments. The following main findings are established. First, enhancing trade openness has a net positive impact on CO2 emissions, while increasing FDI has a net negative impact. Second, the relationship between CO2 emissions and trade is a Kuznets shape, while the nexus between CO2 emissions and FDI inflows is a U-shape. Third, a minimum trade openness (imports plus exports) threshold of 100 (% of GDP) and 200 (% of GDP) is beneficial in promoting a green economy for the first and second sample, respectively. Fourth, FDI is beneficial for the green economy below critical masses of 28.571 of Net FDI inflows (% of GDP) and 33.333 of net FDI inflows (% of GDP) for first and second samples, respectively. It follows from findings that while FDI can be effectively managed to reduce CO2 emissions, this may not be the case with trade openness because the corresponding thresholds for trade openness are closer to the maximum limit. This study complements the extant literature by providing critical masses of Trade and FDI that are relevant in promoting the green economy in Sub-Saharan Africa.

• Item Type: MPRA Paper
• Language: English
• Keywords: CO2 emissions; Economic development; Africa; Sustainable development
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O38 - Government Policy; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa; P - Economic Systems > P3 - Socialist Institutions and Their Transitions > P37 - Legal Institutions ; Illegal Behavior

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