The impact of financial development and foreign direct investment on environmental sustainability in Sub-Saharan Africa: using PMG-ARDL approach

Abstract

This study is aimed at establishing the impact of foreign direct investment and financial development on carbon dioxide emission and clean energy using 44 countries in sub-Saharan Africa ranging from 1998 to 2017. Employing a second generation unit root test in conjunction with Pooled Mean Group, the study established that financial development have significant positive impact on clean energy consumption in sub-Saharan Africa. This was found to be consistent in both low-income and middle-income countries in sub-Saharan Africa. Financial development is however found to be significantly negative with carbon dioxide in sub-Saharan Africa and middle-income countries. This relationship is only positive in the low-income countries. Foreign direct investment does not have any significant impact on clean energy consumption in sub-Saharan Africa. A significant impact is noted after the decomposition of the sample into low-income and high-income countries. In low-income countries, foreign direct investment inflows impact positively on clean energy consumption. This relationship is however negative with middle-income countries. The link between foreign direct investment and carbon dioxide is significantly positive in the whole sample and also in low-income countries. These long-run relationships have been confirmed by the causality test.