Empirical Test of Pollution Haven Hypothesis in Nigeria Using Autoregressive Distributed Lag (Ardl) Model

Abstract

This study set out to investigate the reality or otherwise of the pollution haven hypothesis in Nigeria using data from 1970 to 2017 and using the autoregressive distributed lag (ARDL) models both in the short and long run. The study used FDI inflows as measure of economic activity and carbon dioxide emission as a measure of regulatory stringency. The study finds the previous FDI inflows as a significant determinant of current FDI both in the short and long run. This implies that the more FDI an economy attracts, the more potentials it has to further attract more FDI. Population, a measure of demand condition of the host economy is positively and significantly related to FDI inflows both in the short run and in the long run. Trade openness has a positively significant impact on FDI inflows in the long run, meaning that globalization encourages FDI inflows. A year lag of the FDI has a positively significant impact on FDI inflows in the long run. This suggest that pollution haven hypothesis which states that industries with polluting technologies tend to relocate to countries or areas (pollution havens) with lax or less stringent environmental regulations is a reality for Nigeria. The implication of this is that government of Nigeria must weigh the beneficial impact of FDI inflows against the pollution impact of ‘dirty’ FDI before deciding or setting its environmental policy.