Nonlinear Impact Of Foreign Direct Investment And International Trade On Environmental Sustainability In Sub-Saharan Africa
Main Article Content
Abstract
This research analyzes the nonlinear influences of foreign direct investment (FDI) and international trade (ITR) on environmental sustainability (ES) in Sub-Saharan Africa (SSA). The ecological footprint (EFP) as well as the log of biocapacity (lBCP) in global hectares per capita serve as integrated proxies for environmental sustainability. The Method of Moments Panel Quantile Regression (MM-PQR) is employed to verify the non-linear relationships between economic variables (FDI and ITR) and environmental outcomes across the distribution of sustainability (low, medium and high) based on the annual panel data from 34 SSA economies from 1990 to 2024 (1,190 observations). The results show that FDI and ecological footprint display statistically significant curvature only among high-ES economies (Q0.75), where the positive squared term suggests that the environmental cost of FDI accumulation intensifies once a country has already attained a relatively favourable sustainability position, whereas the low- and moderate-ES quantiles show no significant curvature. For biocapacity, in contrast, the squared FDI and squared trade terms are statistically significant across nearly all quantiles, indicating that the regenerative side of environmental sustainability responds to both FDI and trade in a distinctly nonlinear way, a pattern that had not been previously confirmed in the SSA literature. International trade retains a consistently negative linear relationship with ecological footprint and a consistently positive linear relationship with biocapacity across all quantiles, with only mild curvature that reinforces rather than reverses these linear patterns. A sensitivity check comparing the full sample (1990–2024) with the observed-data sample (1990–2023) confirms that these relationships are not driven by the extrapolated final year of data. The findings imply that FDI-related environmental policy in SSA cannot rely on a single, economy-wide threshold; instead, phased environmental audits for FDI-intensive sectors, green investment incentives, and environmental clauses in trade agreements should be calibrated to a country's position on the sustainability distribution, with particular attention to the biocapacity risks that emerge once FDI accumulation surpasses moderate levels.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
References
Abdouli, M., & Hammami, S. (2017). Economic growth, FDI inflows and their impact on the environment: An empirical study for the MENA countries. Quality & Quantity: International Journal of Methodology, 51(1), 121–146. https://doi.org/10.1007/s11135-015-0298-6
Adeleye, N., Osabohien, R., & Olowookere, E. (2022). Environmental Kuznets curve in Sub-Saharan Africa: A quantile regression analysis. Environmental and Resource Economics Review, 13(1), 1–22. https://doi.org/10.1007/s10668-021-01232-1
African Development Bank (AfDB). (2023). African economic outlook 2023: Mobilizing private sector financing for climate and green growth. https://www.afdb.org/en/documents/african-economic-outlook-2023
Agyekum, E. B., Nutakor, C., & Nyarko, D. (2023). The role of renewable energy consumption in enhancing environmental sustainability in Sub-Saharan Africa. Renewable and Sustainable Energy Reviews, 175, 113137. https://doi.org/10.1016/j.rser.2023.113137
Ahmad, M., Jabeen, G., Irfan, M., Işık, C., & Rehman, A. (2021). FDI and environmental pollution: Evidence from the provinces of China. Environmental Science and Pollution Research, 28(4), 4603–4616. https://doi.org/10.1007/s11356-020-10667-9
Ali, S., Yusop, Z., Kaliappan, S. R., & Chin, L. (2020). Dynamic common correlated effects of trade openness, FDI, and institutional performance on environmental quality: evidence from OIC countries. Environmental Science and Pollution Research, 27(11), 11671–11682. https://doi.org/10.1007/s11356-019-07590-3
Antweiler, W., Copeland, B. R., & Taylor, M. S. (2001). Is free trade good for the environment? American Economic Review, 91(4), 877–908. https://doi.org/10.1257/aer.91.4.877
Arthur, B., Saha, M., Sarpong, F. A., & Dutta, K. D. (2024). Unlocking Africa's potential: The transformative power of foreign direct investment for sustainable development. Heliyon, 10(5). https://doi.org/10.1016/j.heliyon.2024.e28045
Avazdahandeh, S. (2024). The impact of the EU–China bilateral investment treaty on CO₂ emissions: Evidence from a structural gravity model. Environmental Science and Pollution Research, 31, 11012–11028. https://doi.org/10.1007/s11356-023-29243-7
Cole, M. A. (2004). Trade, the pollution haven hypothesis and the environmental Kuznets curve: Examining the linkages. Ecological Economics, 48(1), 71–81. https://doi.org/10.1016/j.ecolecon.2003.09.007
Copeland, B. R., & Taylor, M. S. (1994). North-South trade and the environment. The Quarterly Journal of Economics, 109(3), 755–787. https://doi.org/10.2307/2118421
Dimuna, K. O., Ekhaese, E. N., & Ndimako, O. O. (2024). Climate change impact on the architecture and built environment dwellers' well-being in Niger Delta Region: a systematic review. Frontiers in Climate, 6, 1498938. https://doi.org/10.3389/fclim.2024.1498938
Edoja, P. E., Aye, G. C., & Gupta, R. (2024). Effects of Energy Consumption, Agricultural Trade, and Productivity on Carbon Emissions in Nigeria: A Quantile Regression Approach. Commodities, 3(4), 494–511. https://doi.org/10.3390/commodities3040028
European Environment Agency (EEA). (2023). The European environment — state and outlook 2023: Knowledge for transition to a sustainable Europe. https://www.eea.europa.eu/publications/soer-2023
Ganda, F., & Panicker, M. (2025). Does access to energy matter? Understanding the complex nexus among energy consumption, ICT, foreign direct investment and economic growth on carbon emissions in Sub-Saharan Africa. Energy Nexus, 17, 100346. https://doi.org/10.1016/j.nexus.2025.100346
Global Footprint Network. (2023). National Footprint and Biocapacity Accounts, 2023 edition. https://data.footprintnetwork.org/
Global Forest Watch. (2023). Deforestation data for Nigeria and Central Africa. https://www.globalforestwatch.org/
Gök, A., Ashraf, A., & Jasinska, E. (2024). The Role of Carbon Emissions on Inward Foreign Direct Investment: A Nonlinear Dynamic Panel Data Analysis. Sustainability, 16(13), 5550. https://doi.org/10.3390/su16135550
Grossman, G. M., & Krueger, A. B. (1991). Environmental impacts of a North American free trade agreement. NBER Working Paper Series, No. 3914. https://doi.org/10.3386/w3914
Grossman, G. M., & Krueger, A. B. (1995). Economic growth and the environment. The Quarterly Journal of Economics, 110(2), 353–377. https://doi.org/10.2307/2118443
Imran, M., Ali, S., Shahwan, Y., Zhang, J., & Al-Swiety, I. A. (2022). Analyzing the effects of renewable and nonrenewable energy usage and technological innovation on environmental sustainability: evidence from QUAD economies. Sustainability, 14(23), 15552. https://doi.org/10.3390/su142315552
International Energy Agency (IEA). (2025). CO₂ Emissions — Global Energy Review 2025 — Analysis. https://www.iea.org/reports/global-energy-review-2025/co2-emissions
International Monetary Fund (IMF). (1993). Balance of payments manual (5th ed.). International Monetary Fund.
International Monetary Fund (IMF). (2001). Balance of payments manual (5th ed.). International Monetary Fund.
Jinapor, J. A., Abor, J. Y., & Graham, M. (2025). Energy consumption and inclusive growth in Sub-Saharan Africa: Does foreign direct investment make a difference?. Energy Policy, 198, 114500. https://doi.org/10.1016/j.enpol.2025.114500
Kayani, U. N., Nasim, I., Aysan, A. F., Bashir, F., & Iqbal, U. (2024). Emerging trends of carbon emissions and foreign direct investment: accounting for ecological footprints, renewable energy, globalization, and technological innovations in BRICS. Environmental Science and Pollution Research, 31(29), 41586–41599. https://doi.org/10.1007/s11356-024-28577-6
Khan, I., Muhammad, I., Sharif, A., Khan, I., & Ji, X. (2024). Unlocking the potential of renewable energy and natural resources for sustainable economic growth and carbon neutrality: A novel panel quantile regression approach. Renewable Energy, 221, 119779. https://doi.org/10.1016/j.renene.2024.119779
Li, X., Ren, Y., & Zeng, Y. (2024). Identifying the impact of global human activities expansion on natural habitats. Journal of Cleaner Production, 434, 140247. https://doi.org/10.1016/j.jclepro.2023.140247
Li, Y., Dong, L., Huang, Y., & Failler, P. (2019). Economic growth quality, urbanization and environmental sustainability in China: A panel quantile regression analysis. Sustainability, 11(18), 5007. https://doi.org/10.3390/su11185007
Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, 61(S1), 631–652. https://doi.org/10.1111/1468-0084.0610s1631
Mustafa, F., Mordi, C., & Elamer, A. A. (2025). The role of foreign direct investment and environmental taxation in promoting renewable energy sustainability. Journal of Cleaner Production, 505, 145515. https://doi.org/10.1016/j.jclepro.2025.145515
Oumarou, M., & Nourou, M. (2024). The effects of trade openness on CO₂ emissions in Sub-Saharan Africa: Fresh evidence from a new measure. Journal of Environmental Science and Economics, 3(3), 69–98. https://doi.org/10.56556/jescae.v3i3.988
Pesaran, M. H. (2004). General diagnostic tests for cross section dependence in panels. Cambridge Working Papers in Economics, No. 0435.
Pesaran, M. H. (2007). A simple panel unit root test in the presence of cross‐section dependence. Journal of Applied Econometrics, 22(2), 265–312. https://doi.org/10.1002/jae.951
Pesaran, M. H., & Yamagata, T. (2008). Testing slope homogeneity in large panels. Journal of Econometrics, 142(1), 50–93. https://doi.org/10.1016/j.jeconom.2008.05.010
Piabuo, S. M., Puatwoe, J. T., Eckebil, P. P. T., Nghogekeh, T. R., & Foundjem-Tita, D. (2024). Foreign direct investment and carbon emissions from land use, land-use change, and forestry (LULUCF): empirical evidence from tropical forest countries. Environment, Development and Sustainability, 26(6), 15639–15665. https://doi.org/10.1007/s10668-023-03987-2
Siripi, H., Kuuwill, A., & Tamakloe, M. D. (2024). Economic growth and environmental sustainability: The role of foreign direct investment and technological innovation on carbon emissions in Ghana. Research in Globalization, 9, 100260. https://doi.org/10.1016/j.resglo.2024.100260
Taghizadeh-Hesary, F., Yoshino, N., & Rasoulinezhad, E. (2022). Trade openness and environmental sustainability in emerging Asia: A panel quantile regression analysis. Environmental Science and Pollution Research, 29(10), 14867–14885. https://doi.org/10.1007/s11356-021-16358-7
United Nations Environment Programme (UNEP). (2023). Emissions Gap Report 2023. https://www.unep.org/resources/emissions-gap-report-2023
Wang, Y., Zhang, Q., Li, H., & Chen, S. (2025). Trade openness and CO₂ emissions in emerging economies: The role of technological innovation. Technological Forecasting and Social Change, 198, 122985. https://doi.org/10.1016/j.techfore.2024.122985
World Meteorological Organisation (WMO). (2024). State of the Global Climate 2024. https://wmo.int/publications/state-of-global-climate-2024
Yi, J., Hou, Y., & Zhang, H. (2023). The impact of foreign direct investment on China's manufacturing carbon emissions. Innovation and Green Development, 2(4), 100086. https://doi.org/10.1016/j.igd.2023.100086
Zarsky, L. (1999). Havens, halos and spaghetti: Untangling the evidence about foreign direct investment and the environment. OECD Proceedings: Foreign Direct Investment and the Environment.