Effect of Foreign Direct Investment on Environmental Sustainability in Sub-Saharan Africa: A Panel EGLS Cross-Section SUR with PCSE Approach

This paper examines the impact of foreign direct investment (FDI) inflows on environmental sustainability in 47 Sub-Saharan African (SSA) countries from 1990 to 2022. This study applies panel-estimated generalised least squares (EGLS) cross-section and seemingly unrelated regression (SUR) with panel-corrected standard error (PCSE) to estimate the data. The dynamic panel pooled mean group (PMG) of the autoregressive distributed lag (ARDL) strategy was used to test the presence of long-run co-integrating relationships among the variables, whereas the dynamic panel fully modified ordinary least squares (FMOLS) was used for robustness analysis. Empirical findings show that FDI inflows exacerbate environmental devastation regardless of the indicator used for environmental sustainability. This study notes that FDI propels carbon dioxide emissions, while also contributing to the depletion of both natural and forest resources. However, FDI’s CO2 emissions-enhancing impact is restricted to the short-run period, similar to its effect on natural resource depletion. The study recommends that environmental regulating agencies in SSA host countries should strictly enforce environmental laws to ensure FDI investors’ compliance. This study further suggests the harmonisation of FDI policies, the integration of operational codes of practice, and the realignment of environmental regulations and laws in all SSA economies to ensure that no one country becomes a favourable destination for FDI investors relative to others.