Foreign Direct Investment in West Africa: Sectoral Evidence on Pollution Haven and Resource Haven Hypotheses
Keywords:
FDI, Pollution halo hypothesis, Resource-seeking FDI, Sectoral FDI, Driscoll-Kraay standard errorsAbstract
Through a sectoral analysis of foreign direct investment (FDI) in relation to environmental regulation stringency (ERS) and natural resource endowment (NRE), this study investigates the validity of the pollution haven hypothesis (PHH) and resource haven hypothesis (RHH) for West Africa. Drawing on panel data for sixteen West African countries from 2014 to 2024, the study applies a fixed-effects model with Driscoll–Kraay standard errors to evaluate the two hypotheses simultaneously. The results indicated that ERS did not significantly influence aggregate FDI inflows. In contrast, NRE and labour endowment emerged as key drivers of FDI, providing strong support for the RHH. Crucially, the sectoral analysis revealed substantial heterogeneity across industries: FDI in the mining, manufacturing, and petroleum sectors was predominantly resource-seeking, consistent with both the RHH and the PHH, whereas tourism-related FDI declined with greater resource abundance. Furthermore, the positive interaction between ERS and NRE suggests that stricter environmental regulations complement rather than deter resource-driven investment. The study therefore advocates strengthening environmental institutions, enhancing resource governance frameworks, and promoting green investment strategies to foster sustainable development in West Africa.
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