The effect of foreign direct investment on the level of carbon emissions in Kenya

Abstract

Foreign direct investment (FDI) can be thought of as either a blessing or a curse to the economies of countries. The study was investigating the impact FDI has on the level of carbon emissions Through FDI, growth of the economy is witnessed. However, it also serves as an avenue for dumping with hazardous effects to the environment. This study examines the effect that foreign direct investment has on the level of carbon emissions in Kenya. The period of study is from 1960-2016. A long run relationship was realized between the explanatory variables and carbon emissions. Owing to this fact a Vector error correction model was most relevant for the study especially in estimating the short run effect. From the results obtained, it is evident that foreign direct investment has a decreasing effect on the level of carbon emissions in both the short and long run. Meaning that with an increase in FDI, a significant reduction in carbon emissions is noted in Kenya. A recommendation made is that the government and policy makers actively and effectively monitor and evaluate adherence to the laid out policies by both foreign investors and foreign related investments. One constraint while carrying out the project was the lack of an abundant dataset. For further research, being able to obtain the sectoral breakdown of how FDI is distributed and carrying out a research based on a sectoral view will be able to give more insight into the topic.