Public sector corruption, FDI and sustainable development in Africa: Does the pollution halo or haven hypothesis hold in Ghana?
Joseph Ato Forson
Abstract
• Corruption and foreign direct investment (FDI) significantly depress Ghana's sustainability over the long term, reinforcing the pollution haven hypothesis. In contrast, these factors stimulate sustainability in the short term, suggesting temporary benefits but long-term environmental costs. • FDI contributes to environmental degradation in Ghana by drawing in multinational enterprises (MNEs) that may sidestep stringent environmental regulations, thereby worsening carbon emissions. • Despite policy steps like the National Anti-Corruption Action Plan and the establishment of ombudsman institutions, corruption persists. This entrenched corruption undercuts the country's sustainable development efforts by encouraging resource exploitation for private gain. • When effectively enforced, regulatory quality enhances sustainability. However, the study points out gaps in environmental enforcement, especially under Ghana's industrialisation policy, which sometimes prioritises investment over environmental safeguards. • Implementing targeted emission taxes, enhancing environmental policy enforcement, and empowering the Environmental Protection Agency with prosecutory powers could mitigate FDI-related environmental impacts. It also emphasizes the importance of diversifying Ghana's energy mix to include more renewable sources. This paper examines the effects of corruption and FDI on sustainable development in Africa, particularly Ghana. The study observes the behaviour of firms using foreign direct investment to track MNEs' role in carbon emission. The study employs a quantitative approach with an ex-post facto research design type to inquiry using data from the World Bank, the Global Footprint Network and Transparency International from 1980 to 2023. The symmetric result discloses that corruption and FDI depress sustainability significantly in the long run. In the short run, it turns out that corruption and FDI stimulate sustainability. However, the short-run asymmetric effect shows that the positive and negative shocks of corruption and FDI exude negative effects on sustainability. This provides strong and consistent evidence of the pollution haven hypothesis of FDI in Ghana. Therefore, firms under the one-district, one-factory (1D1F) flagship policy and beyond must be encouraged to adhere to the strict carbon policy of the host country. The decision of the government to introduce an emission tax in the 2024 budget is tenable but the tax must be properly targeted to achieve the desired outcome.