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Foreign direct investment, bad governance and forest resources degradation: evidence in Sub-Saharan Africa

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Abstract

This paper examines foreign direct investment’s (FDI) effects on forest area change conditional on governance in Sub-Saharan Africa (SSA). This research is motivated by an apparent lack of attention on the unrestrained extraction of non-renewable natural resources in developing countries by multinational corporations in the empirical literature of pollution haven hypothesis. Using a panel data set of 38 SSA countries, over the period 1996–2011, this study reveals that FDI has a negative and significant net effect on forest area. The magnitude of this effect depends on the level of governance in these countries, despite the positive impact of governance indicators on forest preservation. This means that multinational corporations activities are associated with a lost of forest cover due to the low level of governance in SSA. Moreover, among the selected governance indicators, the findings suggest that in a regime where the rule of law and corruption control are not enforced, FDI leads to more forest degradation. More precisely, a marginal increase in the FDI stock (resp. flow) conditional on the average levels of rule of law and corruption control lead to a reduction of 6.63% (resp. 9.77%) and 5.74% (resp. 8.86%) respectively of forest cover per capita.

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Notes

  1. Commodity prices index refer to the price changes of commodities exported from developing countries in the food, agricultural, minerals, ores, metals, and energy sectors.

  2. The Congo Basin forests cover six countries: Cameroon, Central African Republic, Democratic Republic of Congo, Republic of Congo, Equatorial Guinea, Gabon. It includes about 70% of the forest of Africa area, either 300 million hectares. More than 99% of the forest area are made up of primary forests and 46% are dense forests of low altitude (Megevand 2013).

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Authors and Affiliations

  1. Economic Policy Analysis Unit of CIRES (CAPEC), Abidjan, Côte d’Ivoire

    Boka Stéphane Kévin Assa

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  1. Boka Stéphane Kévin Assa
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Correspondence to Boka Stéphane Kévin Assa.

Appendices

Appendix 1

See Table 4.

Table 4 Variables, sources and descriptions
Full size table

Appendix 2: List of countries

Angola

Cape verde

Madagascar

Swaziland

Burundi

Ethiopia

Mali

Chad

Benin

Gabon

Mozambique

Togo

Burkina

Ghana

Malawi

Tanzania

Botswana

Gambia

Mauritius

Uganda

Central Africa Rep.

E. Guinea

Niger

South Africa

Cote d’Ivoire

Kenya

Nigeria

Zambia

Cameroun

Liberia

Rwanda

Zimbabwe

Congo. Demo. Rep.

Lesotho

Sudan

 

Congo

Guinea-Bissau

Senegal

 

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Assa, B.S.K. Foreign direct investment, bad governance and forest resources degradation: evidence in Sub-Saharan Africa. Econ Polit 35, 107–125 (2018). https://doi.org/10.1007/s40888-017-0086-y

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  • DOI: https://doi.org/10.1007/s40888-017-0086-y

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