Foreign Direct Investment and Energy Infrastructure in Sub-Saharan Africa: Does Energy Infrastructure Condition the Sustainable Development Effects of FDI?

Despite rising foreign direct investment (FDI), Sub-Saharan Africa continues to experience inadequate energy infrastructure and weak sustainable development outcomes, suggesting that investment alone is insufficient to generate long-term development gains. This study investigates whether energy infrastructure conditions the relationship between FDI and sustainable development in 35 Sub-Saharan African countries over the period 2000–2024. Sustainable development is measured using adjusted net savings, while energy infrastructure is proxied by the Energy Infrastructure Composite Index. The analysis employs complementary second-generation panel estimators, including fixed effects with Driscoll–Kraay standard errors, common correlated effects mean group, Augmented Mean Group, System Generalized Method of Moments, and panel quantile regression to address cross-sectional dependence, slope heterogeneity, endogeneity, dynamic persistence, and distributional heterogeneity. The results demonstrate that FDI exerts adverse effects on sustainable development where energy infrastructure is weak but generates significant positive outcomes as infrastructure improves. Institutional quality consistently emerges as the most robust determinant across all estimators and quantiles, while the positive interaction between FDI and energy infrastructure confirms that stronger energy systems enhance countries’ absorptive capacity. The findings underscore the need for coordinated investments in energy infrastructure and institutional reforms to maximize the sustainable development benefits of foreign investment in Sub-Saharan Africa.