The Other Side of the Coins: The Environmental Impact of Greenfield FDI in Sub-Saharan Africa´s Pollution-Intensive Industries and the Role of Governance

While foreign direct investments (FDI) are promoted as a vehicle for economic development their environmental consequences are less estab-lished. This study tests the hypotheses that 1) FDI led to environmental deg-radation in form of increased greenhouse gas emissions during Sub-Saharan Africa´s recent growth spurt but that 2) this impact was felt to a lesser extent in countries with a higher quality of governance. The study builds its own panel dataset covering 12 countries and the years 2003 to 2012. While due to the research design no causal relationship can be determined, the study suggests that countries with a well-enforced rule of law noticed a lower in-crease of greenhouse gas emissions growth than countries where it was bad-ly enforced. A fixed-effects model indicates that this difference would have been five percentage points for a country with an average share of FDI in pollution-intensive industries. This result is robust to different specifica-tions. It carries economic significance as the study suggests several channels through which governance can mitigate the environmental impact of FDI. This study advances previous research by focusing on the role of govern-ance, pollution-intensive industries, and greenfield FDI.