Evaluating the effect of urbanization and foreign direct investment on water use efficiency in West Africa: application of the dynamic slacks-based model and the common correlated effects mean group estimator

• Published in: Environment, development and sustainability Vol. 25; no. 7; pp. 5867 - 5897
• Main Authors: Addae, Ethel Ansaah, Sun, Dongying, Abban, Olivier Joseph
• Format: Journal Article
• Language: English
• Published: Dordrecht Springer Netherlands 01.07.2023; Springer Nature B.V
• Subjects: Data envelopment analysis; Earth and Environmental Science; Ecology; Economic development; Economic Geology; Economic Growth; Efficiency; Environment; Environmental Economics; Environmental Management; Foreign investment; Income; Industrial areas; Null hypothesis; Panels; Robustness; Sustainable Development; Tests; Urbanization; Water; Water use; Water use efficiency; West Africa; CCEMG; Urbanization; FDI; Dynamic slack-based model-DEA; Water use efficiency
• ISSN: 1387-585X; 1573-2975
• DOI: 10.1007/s10668-022-02284-9

This study examined the pattern of water use efficiency and its potential relationship with urbanization and foreign direct investment between 2007 and 2016 in 11 West African countries. According to the dynamic slacks-based model of data envelopment analysis, Benin, Burkina Faso, Liberia, Mauritania, and Togo met the efficiency frontier of 1.00 while the rest of the countries were below average (0.50). Also, since the total efficiency score (0.627) was less than the optimum efficiency frontier of 1.00, then economic growth, which was used as a carryover variable, had a negative impact on water use efficiency in West Africa as a whole. The cross-sectional independence tests were all meaningful at 1%, suggesting that the null hypothesis of cross-sectional independence in this analysis was rejected. This indicates that there are dependencies among the sampled countries, prompting the use of cross-sectional Im, Pesaran, and Shin unit root tests, as well as cross-sectional augmented Dickey–Fuller unit root tests, which were all initially non-stationary but became stationary after first difference. Furthermore, the common correlated effects mean group (CCEMG) panel estimator was employed to examine the long-run relationships that exist in the sampled series. From the results of the estimation, urbanization had a vital impact on water use efficiency (WUE) across all panels; foreign direct investment had a significant positive influence on WUE in the main and lower-middle-income (LMI) panels but insignificant in the low-income (LI) panel. In addition, export had a significant impact on WUE in the LMI panel but had an insignificant impact on the main and LI panels. Also, industrial activities had a significant negative effect on WUE across all panels, and finally, literacy rate had a positive influence on WUE in the LMI panel but offered an insignificant effect in the main and LI panels. The dynamic common correlated estimated mean group estimation finding, which was used for robustness tests, confirmed the CCEMG estimation result. Policy recommendations based on the results are further discussed.