Testing the Environmental Kuznets Curve and Pollution Haven Hypothesis: Using the dynamic Interaction of Macroeconomic Variables in Zambia

Abstract

Purpose: This study investigates the dynamic relationship between macro-economic variables, specifically FDI and economic growth (GDP per capita), and their impact on GHG emissions in Zambia. Using time series data from 1990 to 2022, this investigation tested the Environmental Kuznets Curve (EKC) and Pollution Haven Hypothesis (PHH). Materials and Methods: The econometric analysis made use of the Vector Error Correction Model (VECM) to evaluate the short run and long run relationship among the variables while the granger causality test was used to analyze the causal relationship among the variables. Findings: The findings revealed that the EKC does not hold in Zambia, indicating a U-shaped relationship between economic growth and GHG emissions. Furthermore, FDI in Zambia supports environmental sustainability, aligning with the Pollution Halo Hypothesis (PHAH) rather than the PHH at least at the low level of current Zambia’s output. The granger causality results indicated that there exists a positive unidirectional causal relationship from GDP per capita to GHG emissions and no causality relationship among the rest of the variables. Unique contribution to Theory, Practice and Policy: These results provide insights for policymakers to balance economic growth with environmental sustainability hence the study suggested policy recommendations aimed at strengthening regulations, promoting green technology, and attracting sustainable foreign investment.