Is Foreign Direct Investment Good or Bad for the Environment? Times Series Evidence from ECOWAS Countries

Foreign direct investment (FDI) is often accused of being one of major factors that may harm the host country's environment. This study contributes to the debate by examining the long run effect of FDI inflows on Carbon dioxide (CO2) emissions in the Economic Community of West African States (ECOWAS). It uses the bounds test of cointegration proposed by Pesaran et al. (2001). FDI inflows, Gross Domestic Product (GDP) and population are used as explanatory variables. Results are mixed across countries. We find evidence supporting that FDI increases CO2 emissions in some countries while it reduces them in others. Evidence of no significant influence of FDI on CO2 emissions is also found. With respect to GDP, the results indicate that an increase in economic growth intensifies CO2 emissions in most countries.