Nexus of Foreign Direct Investment (FDI) and Environmental Emissions in South Africa: A Markov-Switching Regression
2025
Teboho Mosikari | Diteboho Xaba
The study on the link concerning FDI and environmental emissions has been the interest in recent environmental economics subject. The interest of this research work is to dynamically understand the effect of FDI on environmental emissions in South Africa. The research applied the renowned Markov-switching regression to explore the association among the variables. Prior to the formal estimation, the data were subjected to a linearity test, non-linear unit root test and cusum test so to ascertain whether the variables conform to non-linearity modeling. The results demonstrated that in both regimes (lower or higher emissions), the influence of FDI is positive and statistically significant. This finding implies that foreign investment is detrimental to our environment, irrespective of regime changes. This finding supports the Pollution Haven Hypothesis (PHH). Furthermore, the results show that emissions in South Africa stay in a low or high regime for a short period between one and two years. Policy implications to the results are that economic and climate change policy makers in South Africa should start to regulate FDI to be environmentally friendly.
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