The Effect Of Foreign Direct Investment (Fdi) On Climate Change: Empirical Evidence From The Manufacturing Sector Of Ghana

ABSTRACT Foreign direct investment (FDI) has been argued to be a blessing and curse to most economies of the world, especially developing economies. Despite its growth enhancing attributes, FDI also serves as an avenue for dumping with subsequent effects on environmental quality. The current study examined the effect of manufacturing FDI and its effects on climate change. Measuring climate change by changes in carbon dioxide emissions, the study employed a time series data spanning years (1975 to 2014). Examination of the time series properties of the model revealed that all variables become stationary after first differencing, an I(1) process which warranted the construction of the Johansen-Juselius test for cointegration. A long run association was established between the explanatory and carbon dioxide emissions. This warranted the use of the Vector Error Correction model as the main model of analysis and specifically in estimating the short run effect. The Vector error correction model revealed a significant short run relationship between previous year‟s emissions and present emissions in the manufacturing sector. The study results were discussed in relation to literature and the directional effects are also checked against theoretical assumptions. In the short run, carbon dioxide and manufacturing FDI were the only variables in the model that proved significant. Generally, manufacturing FDI was found to have negative effect on carbon dioxide emissions in the short run, but positive effect in the long run. Following from the study findings, some constructive recommendations were made