Regulatory bodies have observed an increase in environmental issues due to firms’ interactions with the environment. Nonetheless, reconciliation actions are emerging, driven by the pursuit of sustainable development goals. This study investigated the impact of financial development and foreign direct investment on ecological footprints in sub-Saharan African nations, while examining the mediating role of regulatory quality and control for corruption. The research was motivated by the growing environmental degradation in the region amid growing capital inflows and financial market expansion. Using panel data of 18 sub-Saharan African countries between 1996 and 2023, sourced from the World Bank database and World Governance Indicators, we employed an Autoregressive Distributed Lag model to assess the short- and long-run relationships among ecological footprint, financial development, foreign direct investment, and key institutional factors. Results from the baseline model show that financial development significantly increases ecological footprints, while the effect of foreign direct investments is insignificant in the absence of institutional factors. However, when mediating variables are introduced, foreign direct investment significantly worsens ecological footprint, and regulatory quality and control for corruption show strong moderating effects, confirming the pollution haven hypothesis. Also, all control variables (trade openness, gross domestic product per capita, government expenditure, and population density) show significant outcomes with environmental sustainability. The findings underscore the importance of institutional factors in shaping sustainable foreign direct investment flows and financial systems. These research findings offer policy pathways for aligning investment strategies with sustainability goals in sub-Saharan Africa. Recommendations include strengthening the nation’s institutional framework, linking foreign direct investment to environmental compliance and promoting green finance policies across the region.
Okere et al. (Thu,) studied this question.