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<p>Sub-Saharan Africa economies face rising ecological pressures, yet there is limited evidence on how financial systems and foreign investment jointly influence greenhouse gas emissions. This study fills this gap by assessing the heterogeneous effects of financial development and foreign direct investment on carbon dioxide, nitrous oxide, and methane emissions across 17 SSA countries between 1990 and 2016. Dynamic ordinary least squares (DOLS) with heterogeneous variance structures and unconditional quantile regression (UQR) employed, the analysis captures how these drivers affect emissions at different levels of economic performance. Results show that FDI raises emissions in low-emission economies but mitigates at higher quantiles where absorptive capacity, technology transfer, and cleaner production systems are stronger. Financial development exerts mixed effects, amplifying emissions where credit fuels conventional production but reducing them when aligned with green investment. Carbon emissions follow the Environmental Kuznets Curve, with declines emerging beyond specific income thresholds, while evidence does not support the Pollution Haven Hypothesis. Findings suggest the importance of strengthening financial regulation, incentivizing low-carbon FDI, and aligning credit markets with clean-energy priorities. Results imply that SSA economies might reduce ecological externalities while sustaining economic growth and accelerating progress toward the Sustainable Development Goals.</p>

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Economic Stability and Ecological Externalities: Heterogeneous Effects of Finance, Foreign Direct Investment, and Greenhouse Gas Emissions in Sub-Saharan Africa

  • 期刊论文

  • 发表日期：

    2026年3月5日

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  • Hassan Swedy Lunku,
  • Zaiyang Li,
  • Shaohua Yang,
  • Muhsin Danga

摘要

Sub-Saharan Africa economies face rising ecological pressures, yet there is limited evidence on how financial systems and foreign investment jointly influence greenhouse gas emissions. This study fills this gap by assessing the heterogeneous effects of financial development and foreign direct investment on carbon dioxide, nitrous oxide, and methane emissions across 17 SSA countries between 1990 and 2016. Dynamic ordinary least squares (DOLS) with heterogeneous variance structures and unconditional quantile regression (UQR) employed, the analysis captures how these drivers affect emissions at different levels of economic performance. Results show that FDI raises emissions in low-emission economies but mitigates at higher quantiles where absorptive capacity, technology transfer, and cleaner production systems are stronger. Financial development exerts mixed effects, amplifying emissions where credit fuels conventional production but reducing them when aligned with green investment. Carbon emissions follow the Environmental Kuznets Curve, with declines emerging beyond specific income thresholds, while evidence does not support the Pollution Haven Hypothesis. Findings suggest the importance of strengthening financial regulation, incentivizing low-carbon FDI, and aligning credit markets with clean-energy priorities. Results imply that SSA economies might reduce ecological externalities while sustaining economic growth and accelerating progress toward the Sustainable Development Goals.