Trade and FDI thresholds of CO2 emissions for a Green economy in sub-Saharan Africa

Abstract

Purpose This study aims to focus on assessing how improving openness influences carbon dioxide (CO2) emissions in sub-Saharan Africa (SSA). Design/methodology/approach This study focusses on 49 countries in SSA for the period 2000–2018 divided into: 44 countries in SSA for the period 2000–2012; and 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. Findings 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 gross domestic product (GDP)) and 200 (% of GDP) is beneficial in promoting a green economy for the first and second samples, 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. Originality/value This study complements the extant literature by providing critical masses of trade and FDI that are relevant in promoting the green economy in SSA.