Current Research in Environmental Sustainability 2 (2020) 100009

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Current Research in Environmental Sustainability

journal homepage: www.elsevier.com/locate/crsust

Does gross domestic income, trade integration, FDI inflows, GDP, and capital
reduces CO2 emissions? An empirical evidence from Nigeria
⁎
Azeem Oluwaseyi Zubair a, , Abdul-Rahim Abdul Samad a, Ali Madina Dankumo a,b
a
School of Business and Economics, Universiti Putra Malaysia, 43400 UPM Serdang, Selangor, Malaysia
b
Department of Economics and Development Studies, Federal University of Kashere, P.M.B 0182, Gombe, Nigeria

A R T I C L E I N F O A B S T R A C T

Article history: This research aims to inquire whether the gross domestic income, trade integration, foreign direct investment (FDI)
Received 15 May 2020 inflows, gross domestic product (GDP), and capital reduces carbon emissions in Nigeria. An Autoregressive Distributed
Received in revised form 14 August 2020 Lag (ARDL) bounds testing to cointegration and the improved Vector Autoregressive (VAR) approaches were
Accepted 16 August 2020
employed for the analysis over the period 1980–2018. From the bounds testing to cointegration result, we found a
long-term relationship between the carbon (CO2) emissions, income, trade integration, FDI inflows, GDP, and capital.
Keywords:
However, we unravel that an increase in FDI inflows, GDP, and capital reduced carbon dioxide emissions in Nigeria.
CO2 emissions The outcomes of the Granger causality shows two-way impacts between CO2 emissions and FDI inflows, while one-
Income way causality occurred from the capital to CO2 emissions. Following our empirical findings, we opined that the Gov-
Cointegration ernment of Nigeria should continue to improve on providing incentives for economic agents, both local and foreign,
Causality under climate-friendly guidelines.
Nigeria

1. Introduction
The continuous feedback hypothesis between economic activities and
carbon dioxide emissions has received global attention in recent decades
(see Schmalensee et al., 1998; Ramanathan, 2005; Chang, 2010; Sharma,
2011; Fei et al., 2011; Andreoni and Galmarini, 2012; Tseng and Hung,
2014; Alshehry and Belloumi, 2015; Zhao et al., 2017). Due to technologi-
cal progress in industrialized nations and variability in climate adaptation,
it appears difficult for some developing economies to observe the guide-
lines of the United Nations Framework Conventions on Climate Change
(UNFCCC) and Kyoto Protocol (Paavola and Adger, 2006; Peterson, 2008;
Yamineva and Kulovesi, 2013). The fundamental goal of the Intergovern-
mental Panel on Climate (IPCC) Agreement is to continually regulate green-
house gas levels in the atmosphere at a level that avoids adverse
anthropogenic encounters with the climate system. It further states that
the level of greenhouse gas (GHG) emissions should be accomplished
within a reasonable timeframe to enable habitats to adapt naturally to cli-
mate change to ensure that food security is not compromised, and to pro-
mote sustainable economic growth.
The fundamental causes of climate change have been identified as bio-
geographic and anthropogenic factors, respectively (Ficetola and Padoa-
Schioppa, 2009; Odjugo, 2011; Lapointe et al., 2012). The accumulated at-
mospheric GHGs have two fundamental implications; they deplete the
ozone layer, thus bringing further solar radiation through the earth's crust
and absorb the outgoing heat from the earth's surface (Odjugo, 2011). Car-
bon dioxide (CO2) emissions consist of several forms among GHGs that are
harmful environmental consequences of human activities (DeWeerdt,
2007).
In Nigeria, the lack of understanding environmental sustainability still
pronounced, and promoting its benefits will include robust economic
growth and FDI inflows to maintain a considerable level of carbon dioxide
emissions. The concept of the environment has been viewed and defined in
different ways from different perspectives (see Singh, 2003; Isife, 2012). In
(Table 1), we present a comparison per GDP and territorial emissions of 10
key economies in Africa in 2018. It evident that South Africa and Libya are
the highest greenhouse gas emitters in Africa, which may be linked to in-
dustrialization and oil production, respectively.
A socio-environmental question that comes into mind is, does gross
domestic income, trade integration, FDI inflows, GDP, and capital reduces
CO2 emissions level in Nigeria? The main reason for this question is be-
cause some group of studies claims that trade integration, gross domestic
product (GDP) and foreign direct investment inflows, etc., tend to influ-
ence an increase carbon emissions of a country as economic development
set in. For instance, Ren et al. (2014) discovered that excessive trade sur-
plus, coupled with enormous FDI inflows are the main motives for the
rapidly rising CO2 emissions in China. Hakimi and Hamdi (2016) ob-
served that lack of green FDI inflows was the reason for increased carbon
emissions level in Tunisia and Morocco, Shaari et al. (2014) established

⁎ Corresponding author.
E-mail address: olumarts@gmail.com. (A.O. Zubair).

http://dx.doi.org/10.1016/j.crsust.2020.100009
2666-0490/© 2020 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/
4.0/).
A.O. Zubair et al. Current Research in Environmental Sustainability 2 (2020) 100009

Table 1 2.1. Economic growth, trade integration and CO2 emissions

Territorial per GDP and territorial emissions in 2018.
Country GDP Territorial/kgCO2/GDP Territorial/MtCO2 The interactions between or among countries about economic and trade
Algeria 573,166.0 0.3 156
activities prompted growing attention to investigating the pollution haven
Angola 165,830.0 0.2 35 hypothesis in scholarly articles. Among the earliest to establish the theoret-
Egypt 1,061,472.0 0.2 239 ical framework for analyzing the impact of economic indicators on carbon
Ghana 125,666.0 0.1 18 intensity were (Grossman and Krueger, 1991). According to Alpay
Kenya 154,356.0 0.1 19
(2002), the disparity between countries in the empirical results of carbon
Libya 86,926.0 0.6 54
Morocco 274,254.0 0.2 66 emissions level depends on various economic determinants, e.g., country-
Nigeria 10,115,510.0 0.1 127 level of growth, competitive advantage, exchanged in resource intensity,
South Africa 681,681.0 0.7 468 existing degree of environmental consciousness, and presence of eco-
Tunisia 125,512.0 0.3 32 friendly policies.
Source: Gilfillan et al. (2019), UNFCCC (2019), BP (2019). Naranpanawa (2011) used Autoregressive Distributed Lag (ARDL) and
the Johansen cointegration techniques to investigate the trade-
environment long-run nexus. The outcome of this study shows that there
the same argument for some developing countries. In Nigeria, this study is only a short-term relationship between trade and carbon emissions.
aims to know whether these assertions are valid, given the economic Keho (2015) exploit the panel ARDL to analyzed the long-term impact of in-
prosperity in the country. ternational trade on the environment and concluded that international
According to the indicators of the World Bank (2018), a CO2 emission trade led to environmental degradation in 11 ECOWAS countries over the
intensity in Nigeria was 0.59 in 1990 rose to 0.71 in 2014. Also, the perfor- period 1970to2010. Rahman and Kashem (2017) used ARDL bounds test-
mance of trade has witnessed imbalance growth over the years in Nigeria. ing and the Toda and Yamamoto (1995) Granger Causality to examine
Most recently, trade experienced an all-time high (53% of GDP in 2011) the relationships between carbon pollution, energy use, and industrial de-
but dropped to 20% in 2016 due to economic uncertainties. This tells us velopment in Bangladesh from 1972 to 2011. First, the authors found that
that industrialization in Nigeria has not been fully utilized because the a long-run co-movement occurs in the model, and causality holds among
country is a net importer of goods and services. the variables. Second, they show a positive relationship between industrial-
In 2009, the insurgence of several militants drove the economy down- ization economic growth and carbon intensity during the period studied. In
ward from its growth path. As of then, FDI net inflows percentage of GDP the research of 12 selected sub-Saharan African countries from 1971 to
was 2.9%, and in 2018, it regressed to 0.50% (World Bank, 2018). This de- 2010,
cline is linked to the high level of risk associated with doing business in Esso and Keho (2016) used cointegration bounds testing and Granger
Nigeria, specifically in the oil-producing region. Besides, Nigeria is the causality to investigate the long-term and causal association between en-
third host economy for FDI in Africa, behind Egypt and Ethiopia, according ergy consumption, CO2 emissions, and economic growth. The observa-
to the United Nations Conference on Trade and Development (UNCTAD, tional findings are mixed across economies. To explore the causal
2009). The significant decline in FDI inflows in Nigeria constrained by relationships regarding energy consumption, carbon dioxide (CO2) emis-
widespread corruption, political instability, lack of transparency, and infra- sions, and economic growth in Nigeria, Sulaiman (2014) employed the
structural inefficiency. Toda and Yamamoto (1995) Granger causality system. The outcomes
The principal motivation for this study is the ambition of the Nigerian showed uni-directional association from carbon emissions to economic
Government to continuously pursuing economic development through growth, energy consumption to carbon emissions. The author found bidi-
the innovation of its real sectors in an eco-friendly environment. The rectional causality between the use of energy and economic growth. Nnaji
main objective of this research is to investigate whether gross domestic et al. (2013) performed bounds testing ARDL to cointegration to check for
income, trade integration, FDI inflows, GDP, and capital reduce or in- long-run relationships and granger causality to investigate the causes
crease CO2 emissions level in Nigeria. Besides, the study aims to deter- among variables from 1970 to 2009 in Nigeria. They discovered that inter-
mine the causal relationship between carbon emissions and the national trade was associated with carbon dioxide emissions, while bi and
aforementioned economic variables during the period 1980–2018. The uni-directional causality exists among the variables. An earlier study,
rest of the study organized as follows: section (2) provides related litera- Chuku and Ndifreke (2011) used a similar approach and find that trade
ture reviewed , section (3) presents the data and methodology, (4) con- has no influencing factor CO2 emissions in Nigeria. Although, they revealed
tains the results and discussions, and (5) focuses on conclusion and that emissions are associated with an increase in income. Whereas, Appiah-
recommendations. Konadu (2013) used a least-squares multiple regression approach to exam-
ine the environmental impact of trade openness from 1970 to 2010, and re-
veal that trade liberalization adversely affects carbon dioxide emissions in
2. Literature review Ghana.
Balsalobre-Lorente et al. (2019a, 2019b) used the Kuznets environmen-
This study builds on the theory of the Environmental Kuznets Curve tal curve (EKC) hypothesis to investigate the association between economic
(EKC), which suggests that an inverted U-shaped is an initial link between development and carbon pollution in a group of 16 chosen Organization of
economic prosperity and CO2 emissions (Bello et al., 2018; Balsalobre- Economic Cooperation and Development countries, over the period
Lorente et al., 2019a, 2019b). However, if an economy achieves some de- 1995–2016. The study reveals that during energy advancement, environ-
gree of development, a favourable association between economic growth mental sustainability is hampered as economic structures deals with institu-
and carbon CO2 emissions will move to a lower degree (Meadows et al., tional imbalances. In an extensive study, Balsalobre-Lorente et al. (2019a,
1972; Grossman and Krueger, 1991; Ozturk & Al-Mulali, 2015; Shahbaz 2019b) validated the EKC hypothesis by demonstrating that the broad eco-
et al., 2019). This action can be considered justified by improvements in in- nomic growth, the use of renewable electricity and innovation in 17 se-
come levels resulting in increased demand for a better quality of the envi- lected OECD countries reduced environmental pollution from 1990 to
ronment. Improving environmental quality remains an issue that has 2012. Michieka and Fletcher (2012) analyze the relationship between ex-
attracted a host of diverse groups across scholarly articles. Meanwhile, ports, CO2 emissions, coal consumption, and trade openness in China
this research can be differentiated from previous studies as it utilized data from 1970 to 2010. The key findings indicate Granger causality from ex-
from 1980 to 2018 to inquire whether gross domestic income, trade inte- ports to emissions and coal consumption to exports. GDP influences poten-
gration, economic growth, FDI inflows, and capital composition reduce tial CO2 volatility. Generally, the outcomes of the study suggest that
CO2 carbon intensity in Nigeria. government policies to regulate coal consumption may affect CO2

2
A.O. Zubair et al.
emissions and exports. It also means that exports are seen as an essential
factor that has raised levels of pollution in China. Sharma (2011) analyzes
the relationship between environmental sustainability, electricity use,
GDP, and urbanization for a panel of 69 countries from 1985 to 2005. Re-
sults indicate that trade openness, per capita output and energy use contrib-
ute to environmental pollution while urbanization does not impact CO2
emissions.
2.2. FDI, capital, and CO2 emissions
Numerous studies have also investigated the connection between envi-
ronmental pollution, FDI inflows, and capital in several countries or bloc of
economies. Frankel and Romer (1999) found that financial liberalization
and development can attract FDI, which in turn can accelerate economic
growth and thus correct environmental performance dynamics. In the
United Arab Emirates, Sbia et al. (2014) employed ARDL bounds testing
to cointegration to investigate the long-term relationships among foreign
direct investment, clean energy, trade liberalization, carbon emissions,
and economic growth during the period 1975Q1–2011Q4. The authors
confirm that the variables co-move in the long-run. They also found that
foreign direct investment, integration of trade reduced greenhouse gas
emissions. The effect of economic growth on energy consumption was
positive.
For Turkey, the long-run and causal interactions among carbon pollu-
tion, GDP, energy usage, trade openness, and financial development from
1960 to 2007 were examined with bounds F-test to cointegration and
error-correction of granger causality (Ozturk and Acaravci, 2013). The re-
sults suggest that expanded trade transparency raises carbon pollution,
while marginal long-term carbon-emitting consequences of financial
growth produced no effect. Hakimi and Hamdi (2016) performed a com-
parative analysis for Morocco and Tunisia using vector error correction
model (VECM) and panel cointegration techniques to establish relation-
ships between trade liberalization, FDI inflows, environmental quality,
and economic development. The paper argues that although trade liberali-
zation has strengthened both economies, it has often affected the carbon
emissions level. Jalil and Feridun (2011) analyze the impacts on China's
economic growth, energy consumption, trade, and financial development
from 1953 to 2006. Findings show a minimal long-term influence of finan-
cial growth on carbon emissions, while economic development, oil usage,
and trade, have significant impacts on pollution.
Based on the reviewed literature, it is worth noting that most studies
have tested the impacts of trade integration and GDP on carbon dioxide
emissions using disaggregated dataset. Also, estimation of the panel, for ex-
ample, ECOWAS or group of countries examined might be misleading as
countries are at different stages of economic growth. Since approximately
or beyond 80% of GDP is powered by oil, mining & quarrying, communica-
tions, manufacturing, trade, and agricultural sectors in Nigeria, which are
highly operating on intensive-energy, the use of disaggregated GDP
(e.g., industrial, agriculture, oil, e.t.c.) or trade (imports & exports) fre-
quently yield contradictory findings that failed to capture total CO2 emis-
sions. Therefore, it is fitting to use aggregated trade and GDP data along
other determinants to investigate whether they reduce CO2 emissions
level in Nigeria.
Moreover, the few studies that have exploited the ARDL bounds testing
to cointegration and Granger causality techniques in Nigeria focused
mostly on energy consumption and economic growth impacts on air pollu-
tion. The model in this study is then tested to determine whether carbon di-
oxide emissions can be reduced with a potential increase in gross national
income, GDP, FDI inflows, trade integration and capital in Nigeria over
the period 1980–2018. This is necessary because the model captures the pe-
riods when Nigeria is facing with an economic recession, required more FDI
inflows to enhance competition and performance, restructuring the real
sectors, the persistence of low-income amid employment rate imbalance.
Therefore, this study used both ARDL bounds testing to cointegration and
VAR Granger causality in order to use the outcomes to inform the public
3
Current Research in Environmental Sustainability 2 (2020) 100009
and policymakers about up-to-date on socio-environmental practices to
maintaining the eco-friendly environment in Nigeria.
3. Materials and methods
3.1. Data and model specification
In the study carried out by Shahbaz et al. (2019), a model representing
the relationship between CO2 emissions, economic growth, income, and
other factors presented as follows:
CO2t ¼ β0 þ β1 Y t þ β2 Y 2t þ β3 Z t þ μt ð1Þ
Where CO2 refers to the carbon emissions level, Y point to economic
growth, Y2 is the income, Z echoed to other determinants, and μ is the dis-
turbance error term, country (t). Following the model of Hakimi and Hamdi
(2016) and Shahbaz et al. (2019)), our linear model is express as:
CO2 ¼ f ðI; TI; FDI; GDP; KÞ ð2Þ
CO2 refers to emission intensity (kg per kg of oil equivalent energy use),
(I) is the gross domestic income, (TI) is the trade integration measured by
the division of total export and total import of good and services percentage
of GDP. (FDI) refers to the foreign direct investment net inflows, (GDP)
points to the gross domestic product in growth rate (K) measured by the
gross fixed capital formation. This paper used the ARDL bounds testing to
cointegration techniques where yearly data from 1980 to 2018 were
used. The use of ARDL was called for because we assume linearity to permit
us to examine the long-run relationship and possible impact of the explan-
atory variables on CO2 emissions that ought to remain the same or uniform.
The data were sourced from the World Development Indicators published
by the World Bank (WDB) database.
In other terms, the model in (Eq. (2)) can be re-written as:
CO2t ¼ β0 þ β1 I t þ β2 lnTI t þ β3 FDI t þ β4 GDPt þ β5 K t þ μt ð3Þ
The short-run and long-run model for carbon intensity are specified as
follows:
X
n X
n X
n
CO2t ¼ δ0 þ δ1 CO2t−1 þ δ2 I t−1 þ δ3 TI t−1
i¼1 i−0 i−0
X
n X
n Xn
þ δ4 FDI t−1 þ δ5 GDPt−1 þ δ6 K t−1 þ θ0 CO2t
i−0 i−0 i−o
þ θ1 I t−1 þ θ2 TI t−1 þ θ3 FDI t−1 þ θ4 GDPt−1 þ θ5 K t−1
þ μt ð4Þ
Where:
The variables remained as described above, t = period, δ0 and δis= con-
stant and parameters for the short-run respectively, while θ0 and θis = long-
run constant and coefficients respectively, μ = disturbance term, Δ = first
difference operator, and ln refer to the logarithm form. However, an alter-
native approach is to consider a linear relationship among log-
transformed variables. In this study, we consider a semi-log linear model
where some of the explanatory variables are transformed to logarithms
(e.g., gross domestic income) to control skewness or variance in the dataset.
This process is consistent with what Gujarati (2004) refers to as a lin-log
model.
In order to examine the Granger causality between the variables, the
study followed the improved Vector Autoregressive (VAR) system of Toda
and Yamamoto (1995).
Y t ¼ p0 þ k 1 Y t−1 þ ⋯⋯⋯ þ gi Y t−k þ m1 X t−1 þ ⋯⋯ þ mk X t−1 þ εt ð5Þ
X t ¼ q0 þ l1 X t−1 þ ⋯⋯⋯ þ h1 X t−k þ n1 Y t−1 þ ⋯⋯ þ nq Y t−1 þ vt ð6Þ
Based on the above (Eq. (5)), we would test:
A.O. Zubair et al. Current Research in Environmental Sustainability 2 (2020) 100009

Null hypothesis (H0; m1 = m2 = mi = 0) against the alternative hy-
pothesis Ha; that X granger causes Y. On the other hand, (Eq. (6)) lead us
to test:
Null hypothesis (H0; n1 = n2 = ni = 0), and alternative hypothesis Ha;
that Y granger causes X.
In each situation, rejecting the null hypothesis is an indication of
Granger causality between two variables. Note that X and Y dataset are in
their ordinary form, which simply means that the variables are not trans-
formed into natural logarithm, and εt and vt are disturbance error terms.
We followed the notations in Rahman and Kashem (2017) to describe
(Eqs. (5) and (6)) with some little changes in the usage of alphabets. The
equations simply describe that, if Yt and Xt are co-integrated, at least one
of the coefficients mi or ni must be statistically significant at not more
than a 5% level. If mi ≠ 0 and ni = 0, then Xt causes Yt in the long run.
The opposite will happen if ni ≠ 0 and mi = 0. If both mi ‡ 0 and ni ‡ 0,
then the feedback relationship exists between Yt and Xt. However, if both
mi and ni = 0, then no co-movement between Yt and Xt. The coefficients
gi and hi depicts the short-run dynamics between Yt and Xt.
4. Results and discussion
4.1. Descriptive statistics and correlation matrix
The descriptive statistics are shown in the upper part of (Table 2) and
listed below are the six variables evaluated for correlation analysis. The cor-
relation matrix results at the lower part of (Table 2), revealed that a nega-
tive correlation exists between CO2 emissions with income, FDI inflows
and GDP, while a positive correlation between CO2 emissions with Trade
Integration and Fixed Capital. Studies suggests that correlation testing
among variables of interests would enable the researcher to perceive a pos-
sible existence of high multicollinearity between them., which makes the
estimates to contradict the economic theory resulting from this effect of
multicollinearity among the explanatory variables (Hamsal, 2006; Agung,
2009). However, multicollinearity among variables only occurs whenever
the correlation value is more than 0.95% (see Iyoha, 2004). Based on the
result presented in (Table 2), all the correlation coefficients are below
0.95%, indicating a non-tendency for multicollinearity among the indepen-
dent variables.
4.2. Unit root
The first phase in the estimation of an ARDL model starts with an anal-
ysis of the stationary properties of variables. In the stationarity, the study
used Augmented Dickey and Fuller (1979) and Phillips and Perron, 1988
unit root tests and found there is a mixed-result. Because, as shown in
(Table 3), both ADF and PP tests show the variables are stationary at
level (1/0) and first difference (1/1).
4.3. Bounds testing to cointegration
We have employed ARDL bounds testing to cointegration developed by
Pesaran et al. (2001) for the analysis as presented in Table 4. In this study,
our ARDL model is selected based on the Akaike information criterion (AIC)
lag selection criteria with (100112) parameters. We determine whether the
amount of CO2 emissions co-move, i.e. if there is a long-term relationship
between carbon dioxide emissions, domestic income, trade integration,
FDI inflows, economic growth, and capital. This approach has some advan-
tages over other methods (Engle and Granger, 1987; Johansen, 1988;
Johansen and Juselius, 1990). First, it is comparatively effective in minimal
or finite-sample observations between 30 and 80 (Pesaran et al., 2001;
Narayan, 2005; Mobin and Masih, 2014). Second, all variables in the
model need not be of the same order of integration, i.e., it can be (1/0),
(1/1), or mixed. Besides, different optimum variables lag, and one
reduced–form equation can be used (Ozturk and Acaravci, 2013). The ap-
proach is, therefore, applicable to this paper, covering the annual sampling
period over 1980–2018. The ARDL technique is also useful for estimating
both short-run and long-run relationships between dependent and explana-
tory variables.
However, the drawback of the ARDL methodology is that none of the
variables must be of I(2) or higher-order, i.e., the ARDL method would be
ineffective if I(2) or higher-order sequence occur (Pesaran et al., 2001;
Narayan, 2005; Mobin and Masih, 2014; Dankumo et al., 2019). Table 4
shows that the F-statistics value is higher than the upper critical limit
value of 4.68 at a 1% significant point. It suggests the existence of
cointegration, i.e., the variables in the model co-move on a long-term
basis (Miller, 1991; Hafer and Jansen, 1991; Narayan, 2005; Niu et al.,
2011; Ozturk and Acaravci, 2013; Sbia et al., 2014).
4.4. Long-run results
Table 5 shows the estimated long-run results for CO2 emissions and its
explanatory variables from 1980 to 2018 in Nigeria. The model shows
that a 1% increase in gross domestic income will increase CO2 emissions
by 0.97% Kilogram of Oil Equivalent energy use (KOE), statistically signif-
icant at a 1% level. This outcome implies that in Nigeria, preference for set
of goods shift from agricultural-based to manufacturing and services goods
as income grows, which leads to energy consumption by producers in order
to meet up the switch in demand, thereby emitting CO2. Also, the result
found support from the Environmental Kuznets Curve (EKC) hypothesis,
which suggests that the level of CO2 emissions initially increases with in-
come until it reaches its stabilization point and then decreases as income
level improves. Besides, this particular result also found support from
other studies (see Feridun et al., 2006; Chuku and Ndifreke, 2011;
Alkhathlan and Javid, 2013; Lin et al., 2015; Kostakis, 2020). The authors
demonstrated that air pollution positively related with income level in
Nigeria and Saudi Arabia. Meanwhile, Ozturk and Acaravci (2013) found

Table 2
Descriptive statistics and correlation matrix (Period: 1980–2018).
Descriptive CO2 Income TI FDI GDP Capital
analysis

Mean 0.826931 3.48e+13 1.54773 1.744905 2.71e+13 4.82e+11

Maximum 1.39494 6.20e+13 2.82705 5.79085 1.30e+14 1.70e+13
Minimum 0.473537 2.60e+10 0.801268 0.257422 5.00e+10 1.20e+10
Std. Dev. 0.2715159 1.65e+13 0.5066968 1.240575 3.75e+13 2.71e+12
Obs. 39 39 39 39 39 39
Correlation matrix
CO2 1
Income −0.2928 1
TI 0.1269 −0.1935 1
FDI −0.4766 −0.0867 0.1527 1
GDP −0.3530 0.8541 −0.3369 −0.2289 1
Capital 0.3470 −0.3406 −0.0099 −0.0841 −0.1134 1

4
A.O. Zubair et al. Current Research in Environmental Sustainability 2 (2020) 100009

Table 3
Unit root tests.
Variables Augmented Dickey-Fuller (ADF) Phillips-Peron (PP)

Level First difference Remark Level First difference Remark

CO2 I −1.950 −5.639*** I(1) −6.066 −42.681*** I(1)

−0.014 −4.365*** I(1) −3.480 −41.229*** I(1)
TI −4.349*** – I(0) −25.479*** – I(0)
FDI −2.453 −5.720*** I(1) −16.197** – I(0)
GDP −0.703 −3.057** I(1) −0.949 −35.111*** I(1)
K −1.021 −4.979*** I(1) −37.763*** – I(0)

Note: ***, ** denotes rejection of the null hypothesis at 1% and 5% respectively, The ADF and PP critical values are MacKinnon (1996) one-sided p-values.

that real income per capita is likely to reduce carbon emissions per capita in
Turkey.
Trade integration in our model showed a positive relationship yet statis-
tically insignificant with CO2 emissions in Nigeria. This result is consistent
with the outcomes in (Grossman and Krueger, 1995; Antweiler et al., 2001;
Feridun et al., 2006; Chuku and Ndifreke, 2011). The result implies that
trade integration could not be regarded as an opportunity to use advanced
technology to improve CO2 emissions in Nigeria. By implication, trade inte-
gration is deficient in affecting CO2 emissions because large percentage of
energy-consuming in Nigeria are still underdeveloped. Although, a prior
study, Adom (2015) suggested that trade integration reduces carbon inten-
sity. Other microeconomic problems responsible for this deficiency are
power shortages, insufficient infrastructure, low human capital, political in-
stability, and crime dissuaded the full integration of the Nigerian market
with the rest of the world.
As shown in (Table 5), result indicated that a 1% increase in FDI inflows
will reduce carbon emissions intensity by 0.268% kilogram of oil equiva-
lent energy use. This outcome is consistent with the one reported by
(Banaerjee and Rahman, 2012; Shahbaz et al., 2013; Shahbaz et al.,
2019; Demena and Afesorgbor, 2019). Foreign direct investment inflows
are a window for production technology spillovers that could enhance the
level of CO2 emissions in the host economy (Adom, 2015). An author,
Kasperowicz (2015), also noted that increase investment towards low-
carbon renewable energy sources would reduce climatic reactions on the
environment. Nonetheless, the comparative findings for FDI inflows in
this study show that sustainable technologies with low CO2 emissions are
funded by the Nigerian government and that policy makers are likely to en-
courage more FDI inflows to Nigeria.
Result also indicated that a 5% increase in economic growth will reduce
CO2 emissions by 1.2% kilogram of oil equivalent, statistically significant at
5% level. This outcome found support from the previous study (Chebbi and
Boujelbene, 2008; Alsaleh et al., 2020a). The authors posited that an in-
crease in GDP will bring about environmental efficiency by switching
away from the high-carbon emission system to a low carbon-based. How-
ever, our result deviate from that of Esso and Keho (2016), who suggested
that among a panel of 12 countries in Sub-Sahara Africa, economic growth
increased carbon emissions in Nigeria. In 1999, the value of GDP for
Nigeria was 57.48 billion US dollars, rose to 398.19 billion US dollars in
2018, growing at an average annual rate of 11.74%. Economic growth is
a crucial tactic for the pursuit of environmental efficiency. Besides, the in-
novation system should act as a mechanism for stimulating economic
growth, which is expected to have a significant and positive impact on
the development of economic activities. A similar assertion is noted in the
existing empirical literature (see Frankel & Romer, 1999; Jalil and
Feridun, 2011; Shahbaz et al., 2013; Al-Mulali et al., 2015a, 2015b). They
postulated that financial progress in a host country would catalyze foreign
direct investment, and the FDI, however, will stimulate higher economic
growth and energy supply, leading to environmental efficiency.
Furthermore, the study employed gross fixed capital formation to assess
its performance pertaining to a potential reduction in carbon emissions in
Nigeria. Result indicates that a 5% increase in fixed capital will induce a
1.52% reduction in carbon emissions in Nigeria. This imply that financing
clean energy projects with fixed capital enhances clean energy innovation
that reduces emissions. This outcome is consistent with the outcomes in
the work of previous studies such as (Birol and Keppler, 2000; Mielnik
and Goldemberg, 2002; Eskeland and Harrison, 2003; Cornillie and
Fankhauser, 2004; Feridun et al., 2006; Hang and Tu, 2007; Changyuan,
2007; Zhang and Chen, 2009; Su-yun and Zhen-yu, 2010; Hübler, 2011;
Andersson and Karpestam, 2013; Lin and Moubarak, 2014; Sbia et al.,
2014; Adom, 2015; Alsaleh et al., 2020a, 2020b). The outcome of the rela-
tionship between carbon (CO2) emissions and fixed capital is consistent
with that reported in (Shahbaz et al., 2019). The authors found that in-
creased fixed capital have reduced carbon (CO2) emissions and enhance en-
vironmental efficiency in G7 countries. Sliogeriene (pp. 305–345, 2014)
demonstrated that an increase in capital would enhance the efficiency of
hydropower sectors in Baltic countries. Polzin (2017) argued that fixed cap-
ital growth and accessibility could be maximized if a financial understand-
ing is built around specific technology, business models, and policy
initiatives to develop a new strategy of moving funds away from high-
carbon assets. More so, Eitan et al. (2019) pointed out that combine com-
plementary expertise, resources, and assets to build synergies between eco-
nomic agents and government would improve access to low-carbon project
funding.
4.5. Short-run results
The result from a short-run model of CO2 emissions in Nigeria presented
in (Table 6), from 1980 to 2018. In the short-run, two variables (GDP and
capital) found to have a relationship with carbon intensity. It shows that
a 5% increase in GDP increases carbon emissions by 1.87 points, validates
the result in Alkhathlan and Javid (2013). However, a 10% increase in cap-
ital significantly led to a decrease in carbon emissions by 1.59%.

Table 5
Table 4 The long-run tests results.
ARDL bounds test to cointegration.
Dependent variable: CO2 emissions Coefficient
Test Statistics Value No. of regressors (K)
Gross domestic income 0.970 (0.047) **
F-Statistics (CO2 emissions) 9.094 5 Trade integration 0.073 (0.686)
Foreign direct investment inflows −0.268 (0.009)***
Critical Value Bounds
GDP growth −1.20 (0.015)**
Lower Bound I(0) Upper Bound I(1) Significance Level
Capital −1.52 (0.035)**
2.26 3.35 10%
2.62 3.79 5% Note ***, **,* indicates significant at 1%, 5% and 10% respectively. P-
3.41 4.68 1% values are in (.)

5
A.O. Zubair et al. Current Research in Environmental Sustainability 2 (2020) 100009

Table 6 test as per AR(2), suggests that the model did not suffer serial correlation as
The short-run tests results. the probability value is higher than a 5% significance level. The model is
Dependent variable: CO2 emissions Coefficient also free of heteroscedasticity as the null hypothesis not dismissed. Further-
Δ GDP growth)-1) 1.87 (0.063)*
more, the model is well stated as the significant level is higher than the 5%
Δ Capital)-1) −3.90 (0.083)* considerable level. Finally, the Jarque-Bera normality result confirmed that
Δ Capital)-2) −1.59 (0.151) the model is normally distributed because the significance value is higher
Intercept −8.063 (0.10)** than the 10% level.
Error-correction coefficients −0.284 ***

Note ***, **,* indicates significant at 1%, 5% and 10% respectively. P-values are
in (.)
Table 7
The diagnostic tests results.
t-statistics P-value
Breusch-Pagan (Hetroskedasticity test) 3.685 (0.159)
Breusch-Godfrey (LM test) serial correlation 15.063 (0.130)
Normality test (Jarque-Bera) 0.4579 (0.7954)
Ramsey Reset test 3.669 (0.066)
Note: P-values are in (.)
As provided in (Table 6), the corresponding error-correction coefficient
of the short-run model is −0.284, consistent with (Kremers et al., 1992;
Bahmani-Oskooee and Wang, 2007). The ECM indicates that, although the
model may be distorted to influence the reduction of carbon emissions
(CO2) in the short term, however, it will be productive in the long run within
three years, five months at a rate of 28.4% (i.e., 1/0.284 = 3.5) and statisti-
cally significant at a 1% level. Our model adjustment time estimate is consis-
tent with one performed by (Dankumo et al., 2019). The authors suggest that
the higher the ECT coefficient, especially the corresponding negative value,
the shorter the adjustment time and vice versa.
Economic theory differentiates between the causes of short-term busi-
ness cycles and long-term economic growth factors (Andersson and
Karpestam, 2013). The author also explained the implications of the short
and long-run effects on changes in business life cycles that could redirect
the path to the use of micro and macroeconomic variables such as gross do-
mestic income, GDP, trade, FDI, and capital. These variables can be
prevented in the short run from automatically responding to shocks and
thus cause the economy to deviate temporarily from its long-term trajec-
tory. On the other hand, long-term economic growth is mainly the result
of supply-side factors (Mokyr, 1994; Goodfriend and King, 1997; Von
Tunzelmann, 2003).
4.6. Diagnostic analyses
The long-run model for estimated CO2 emissions, as shown in (Table 7)
found to be healthy because the Breusch–Godfrey Lagrange multiplier (LM)
4.7. Stability test
We used the cumulative sum of recursive (CUSUM) and CUSUM-
squared residuals established by (Brown et al., 1975) to examine the
long-run stability test for the ARDL model. Fig. 1 shows that the plot of
the residuals lies within two pairs of straight lines, implying the existence
of stable carbon CO2 emissions at a 5% critical bound in Nigeria, during
the period 1980–2018. The same applies to the CUSUM-squared statistics
(Fig. 2), which are based on the squared recursive residuals. These out-
comes are consistent with (Bahmani-Oskooee and Ng, 2002; Bahmani-
Oskooee and Gelan, 2008; Kumar et al., 2013; Rahman and Kashem,
2017). As we have unravelled that long-run relationship exists in the
ARDL model, it is worth noting here that the results in (Figs. 1 and 2) fur-
ther substantiate this claim. In other words, carbon intensity (CO2) in
Nigeria suffered no significant increase between 1980 and 2018. Besides,
an increase in FDI inflow, fixed capital, and economic growth will influence
a long-term reduction to carbon emissions in Nigeria.
4.8. Granger causality test
We examine the causal relationships between carbon intensity, gross
national income, trade integration, FDI inflows, GDP growth, and capital
in Nigeria during the period 1980–2018. Upon performing the long-run re-
lationships between the variables, we then proceed to estimate the Granger
causality based on the VAR test introduced by Toda and Yamamoto (1995)
to determine the uni, bi, or no direction of causality among the variables. As
presented in (Table 8), we found the existence of bi-directional causality be-
tween CO2 emissions and foreign direct investment. From the Granger cau-
sality outcome, we can infer that a feedback hypothesis occurred between
CO2 emissions and FDI in Nigeria. We also found the existence of a uni-
directional causality between capital and carbon emission intensity in
Nigeria, agrees with (Pao and Tsai, 2011).
The link between investment and CO2 emissions has been studied in
many developed and less developed economies. For example, Alsaleh
et al. (2020b) discuss the importance of improving the efficiency of global
competitiveness variables in order to reduce the harmful effects of fossil
fuel combustion on the environment. Moreover, a well-functioning invest-
ment in the host economy (e.g., Nigeria) is deemed to facilitate incentives

Fig. 1. Cumulative sum of recursive residuals.

6
A.O. Zubair et al. Current Research in Environmental Sustainability 2 (2020) 100009

Fig. 2. Cumulative sum of recursive squares residuals.

Table 8 performance, the economy will be subjected to the implementation of ad-

Granger causality result. vanced technologies for efficient production and sustainability, signifying
Variable CO2 Causality TI FDI GDP Capital
that higher growth rates can provide incentives for economic agents to
directions adopt highly efficient production technologies in Nigeria. Finally, during
Income
the period 1980–2018, fixed capital had a negative relationship but statis-
tically significant with the CO2 emissions level in Nigeria, which implies
CO2 – 1.7724 4.4286** – –
that an improvement in Nigeria's fixed capital strength will play a vital
Income 0.1189 0.00657 0.13297 0.6737 13.676***
TI 0.3217 – 0.40074 – – role in reducing carbon emissions. These long-term results, from a policy
FDI 7.9142*** – 0.29295 – – perspective, suggest that opportunities and challenges must be address to
GDP 0.64721 4.8054** 0.65415 2.3895 0.31822 provide leverage for both local and foreign investors.
Capital 10.826*** 21.044*** 1.9894 0.18031 0.66112
Based on the Granger causality results, this study found a bidirectional
Note ***, **, indicates significant at 1%, and 5% respectively. relationship between CO2 emissions and foreign direct investment. A uni-
directional relationship between CO2 emissions and capital. Meanwhile,
for economic agents to maintain a low-carbon environment, which resul- we found no causal association between carbon emissions and gross domes-
tantly leads to long-run sustainable development. In other words, the car- tic income, trade integration, and economic growth during the period
bon emissions level is heavily dependent on how well the investment 1980–2018. Consistent with Ghosh (2009), Zaman (2012), and Ghosh
capacity is developed. As an economy improves its capital opportunities, et al. (2014), whose studies provide similar evidence in Granger causality
an increase in the supply of abatement technology will occur. These out- tests for India and Bangladesh. These results draw our attention to conclude
comes of the Granger causality is explained in the supply‑leading that Nigeria has yet to transform into an industrialized economy; thus, con-
hypothesis. tinuous pathways to stable economic growth will produce little or no
changes to carbon intensity level. This study, therefore, suggests that the
real industrial sectors should be empowered to fully utilize the country's
5. Conclusion trade capacity and capital base while growing attraction for clean technol-
ogy to solidify sustainable development for environmental goals.
The debate on the effects of trade, income, FDI, and economic growth
on carbon intensity levels still ongoing in many developed and developing Authors contributions
economies. Most notably, low-income countries such as Nigeria. This re-
search used the linear ARDL to cointegration and the Granger causality Azeem Oluwaseyi Zubair did the original draft, data of the manuscript,
models to investigate the long-run relationships among the variables in investigation, methodology, and the administration of the paper.
Nigeria over 1980–2018. From the findings, we conclude that a long-run re- Ali Madina Dankumo provides software, visualization and formal anal-
lationship holds based on ARDL bounds testing results. We also find causal- ysis of the paper.
ity between FDI inflows, capital, and carbon dioxide emissions in Nigeria. A.S. Abdul-Rahim supervised the whole sections of the manuscript.
Furthermore, using the CUSUM and CUSUM of squares test, we discovered
that carbon emissions are stable in Nigeria during the period studied.
The results also found support from the validity of the EKC hypothesis,
Declaration of Competing Interest
which suggests that the level of CO2 emissions initially increases with in-
come until it reaches its stabilization point and then decreases. The impact
The authors reported no conflicts of interest.
of foreign direct investment inflows on energy intensity is negative and sta-
tistically significant at 1% level. An integrated FDI policy that considers the
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