Trade Openness, Foreign Direct Investment and Environmental Sustainability Nexus in Nigeria

Subject and purpose of work Although foreign direct investment has the potential to promote sustainable economic growth, research shows a troubling pattern: some countries that attract these investments become “pollution havens” for developed nations. On the other hand, various researchers are of the notion that FDI has the potential to promote sustainability if there are stringent environmental regulations. This has led to a serious debate between the “Pollution Haven” and “Porter” hypotheses. Accordingly, the purpose of this study is to determine which of these hypotheses holds, by examining the impact of trade openness and foreign direct investment on Nigeria’s environmental sustainability. Materials and methods The variables of interest are total greenhouse gas emissions, foreign direct investment (FDI), trade openness, access to electricity, access to clean fuels and technology, and urban population. The Dynamic Ordinary Least Squares (DOLS) estimation technique was deployed in this study. Results The study’s findings indicate that foreign direct investment (FDI) has a statistically significant negative long-run effect on Nigeria’s overall greenhouse gas (GHG) emissions. This robust result, with a coefficient of −0.10478 and a probability of 0.0012, lends strong support to the Porter Hypothesis. While trade openness also exhibits a negative long-run association with GHG emissions, its effect was not found to be statistically significant, showing a coefficient of −0.00166 and a probability of 0.4122. Conclusions As a result, the report suggests that the Nigerian government supports the creation of compressed natural gas (CNG) stations and the switch to CNG-powered vehicles. The Nigerian government can also promote investment in the green energy industry by offering tax holidays and other benefits to companies operating in this field. Furthermore, there should be a widespread public education campaign on the threat posed by global warming and the necessity of planting trees to mitigate the effects of climate change and discourage tree-cutting.