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THE CAUSAL RELATIONSHIP AMONG FOREIGN DIRECT INVESTMENT, POLLUTION, AND ECONOMIC GROWTH IN SUB SAHARAN AFRICA COUNTRIES: A PANEL DATA APPROACH

J. S. Ojewumi () and S. M. A. Posu
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J. S. Ojewumi: Department of Economics, Adeyemi University of Education, P.M.B. 520, Ondo, Ondo State, Nigeria.
S. M. A. Posu: Department of Economics, Federal University of Agriculture, P.M.B. 2240, Abeokuta, Ogun State, Nigeria.

West African Journal of Monetary and Economic Integration, 2016, vol. 16, issue 2, 23-44

Abstract: This paper provided empirical evidence on the causal relationship among Foreign Direct Investment (FDI), pollution and economic growth in the Sub-Saharan African (SSA) countries. The study employed a panel framework for annual secondary time series data sourced from World Development Indicators database of the World Bank (2014) for thirty-three SSA countries for the period 19802014. The data were analyzed using econometric techniques of Panel Unit Root, Panel Cointegration, and Panel Vector Error Correction (PVEC) Granger Causality tests. Panel variance decomposition test was also applied to complement the various tests conducted. The results showed the direction of causality running from FDI to economic growth; from economic growth to pollution; and from pollution to FDI to establish uni-directional relationships among the three variables. Any policy that affects one of the variables will thereafter influence the others. From the study, FDI had a significant role in determining the level of economic growth within the region and that the level of economic growth was significant in determining the pollution density in the countries of SSA. Pollution density was significant in driving FDI in the sub-region. The paper recommends that SSA countries should adopt appropriate mix of environmental and growth policies that would mobilize sufficient FDI inflow for consistent and sustainable economic growth and development in the region.

Keywords: FDI; Pollution emissions; Economic growth; Panel cointegration; Granger causality. (search for similar items in EconPapers)
JEL-codes: C32 C33 F35 Q53 (search for similar items in EconPapers)
Date: 2016
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