Endogenous Growth and Environmental Kuznets Curve: Lessons from FDI Impact on Economic Growth in Sub-Saharan Africa

Abstract

Purpose: This study aims to determine the influence of Foreign Direct Investments (FDI) on economic growth in Sub-Saharan Africa (SSA). It examines the endogenous growth theory and the Environmental Kuznets Curve (EKC) theory, and how they relate to the regional data. Method: Using panel quantile autoregression models, this study explores the relationship between FDI inflows into SSA with energy consumption, carbon emissions, and economic growth. The study is based on data from 1975 to 2018. Result: The study findings conclusively demonstrate that foreign direct investment has a significant impact on the economic growth of the SSA region. Furthermore, the study reveals that energy consumption and carbon emissions in the SSA have consistently increased throughout the study period, with foreign direct investment being identified as the primary driver of this trend. These findings are consistent with the Environmental Kuznets Curve (EKC) hypothesis, as well as the endogenous growth theory, which suggests that FDI operations can have negative consequences on the host environment. Practical Implications for Economic Growth and Development: The study suggests that Sub-Saharan Africa should manage FDI carefully to balance economic growth with environmental sustainability by promoting green investments and creating an investment-friendly environment.

Keywords

• foreign direct investment
• energy consumption
• carbon emissions
• economic growth
• endogenous growth
• environmental kuznets curve