Investing for a greener future: unpacking the dual impact of FDI on carbon emissions and the transformative role of renewable energy

Abednego Osei ()
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Abednego Osei: Jiangsu University

SN Business & Economics, 2025, vol. 5, issue 1, 1-27

Abstract: Abstract While Foreign Direct Investment (FDI) is often seen as a driver of economic growth, its environmental impact, particularly in sub-Saharan Africa, raises critical questions about sustainability. Can FDI foster climate action in line with the global goal of reducing CO2 emissions, or will it simply intensify environmental degradation? This study delves into this paradox, exploring how FDI inflows and outflows shape carbon management practices in the region, with renewable energy adoption playing a pivotal role in mitigating adverse effects. Drawing on the Pollution Haven Hypothesis and the Environmental Kuznets Curve theories, models are developed to analyze how these dynamics unfold over time. Using data from 35 sub-Saharan African (SSA) countries spanning from 2000 to 2022, the dynamic generalized methods of moments (GMM) estimator is applied along with instrumental variables to ensure the robustness of the results. The results confirm that FDI inflows have a positive impact on CO2 emissions, while FDI outflows recorded a negative impact on CO2 emissions. Moreover, renewable energy adoption mitigates the adverse effects of FDI on CO2 emissions. Finally, the non-linear findings indicate that FDI inflows initially increase CO2 emissions but eventually lead to a decrease in emissions as investment levels continue to rise. These insights provide valuable implications for policymakers, suggesting that balanced investment policies, effective economic strategies, and an emphasis on renewable energy adoption are essential to achieving SDG 13 and fostering sustainable development in sub-Saharan Africa.

Keywords: Carbon emissions; FDI; Renewable energy; Greenhouse gas inventory; SSA (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s43546-024-00779-3

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