Foreign direct investments and environmental quality in sub-Saharan Africa: the merits of policy and institutions for environmental sustainability

Abstract

This study investigates the association between foreign direct investment (FDI) and environmental quality, taking into account policies and institutions for environmental sustainability across 23 sub-Saharan African (SSA) countries. We applied the Generalised Method of Moment (system-GMM) to analyse the data for the period 2005 to 2019. The results revealed that FDI improves environmental quality in the long run, whereas in the short run, FDI diminishes environmental quality when interacted with policies and institutions for environmental sustainability. Furthermore, policies and institutions for environmental sustainability and domestic investment improve environmental quality in both the long and short run. The study concludes that policies and institutions for environmental sustainability in SSA are important as they improve environmental quality. The study also finds policies and institutions for environmental sustainability complements with FDI to improve environmental quality in the long run. Finally, the study further establishes that domestic investment is important to improve environmental quality in SSA. The key findings call for strengthening policies for improving environmental quality in SSA.