Foreign Direct Investments and Environmental Quality in Sub-Sahara Africa: The Merits of Policy and Institutions for Environmental Sustainability

Abstract Environmental concerns in today’s world cannot be overemphasised. These concerns have interested policymakers and researchers to delve into the causes in order to help mitigate environmental deterioration and support policies and institutions for environmental sustainability. This study, therefore, investigates the association between foreign direct investment (FDI) and environmental quality, taking into account policies and institutions for environmental sustainability across 23 Sub-Sahara Africa (SSA) countries. Employing the generalised method of moment (system-GMM) for the analysis, the results revealed, among others things, 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 SSA in both the long and short run. The study, thus, concludes that policies and institutions for environmental sustainability in SSA are important as they improve environmental quality as well as complement FDI to improve environmental quality in the long run. The study further establishes that domestic investment is important to improve environmental quality in SSA. The study recommends policies for improving environmental quality to policymakers and stakeholders in SSA.