Foreign direct Investment and carbon emissions nexus in Nigeria: Evidence from nonlinear ARDL and causality approaches
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The study examines the asymmetric effects of foreign direct investment on carbon emissions and ascertains the direction of causality between them. Employing annual data series from 1980 to 2022, the study uses autoregressive distributed lag model, vector error-correction modelling, and Granger causality approaches to achieve the objectives. The nonlinear bounds test supports a cointegration relationship among the variables employed in the model. Moreover, the results confirm the asymmetry effect of foreign direct investment on carbon emissions in the short run but not in the long run. The results show that positive shocks in foreign direct investment have a reducing insignificant effect on carbon emissions. Likewise, negative shocks in foreign direct investment have a significant, reducing effect on carbon emissions. Trade openness, energy use, and the ratio of private sector’s credit to GDP reduce carbon emissions, while per capita income and oil price increase it. The study is significant as it shows that carbon emissions respond differently to changes in foreign direct investment in the short run only. Therefore, policymakers should encourage more FDI inflows through improved credits and increased trade openness. However, they must promote the adoption of low-carbon and environmentally friendly technologies that will facilitate the attainment of the same or even higher output at lower carbon emissions in the country.
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