A dynamic panel analysis of foreign direct investment and inclusive green growth in Sub Saharan Africa

This study examines the relationship between foreign direct investment (FDI) and inclusive green growth (IGG) in Sub-Saharan Africa, addressing key methodological limitations in prior research. Using a Panel ARDL framework with Mean Group (MG) estimation on data from 28 SSA countries spanning 1990 to 2023, we construct a comprehensive IGG index based on entropy weighting and explicitly account for cross-country heterogeneity. The results reveal a dual impact of FDI: negative in the short run but positive in the long run. Crucially, the interaction between FDI and corruption is significantly negative, indicating that corruption actively undermines the potential benefits of FDI, rather than compensating for weak institutional frameworks. Energy intensity negatively affects IGG, while urbanization shows no statistically significant effect. These findings carry important policy implications: (1) prioritize anti-corruption reforms ahead of investment attraction efforts, (2) introduce mandatory ESG screening for all FDI projects, (3) offer fiscal incentives targeting green sectors, (4) strengthen local absorptive capacity through technical education and skills development, and (5) accelerate the energy transition by promoting investment in renewable energy. Overall, the results underscore that institutional quality is a prerequisite—not merely a complement—for FDI to contribute meaningfully to sustainable development in Sub-Saharan Africa.