CLIMATE CHANGE, FOREIGN DIRECT INVESTMENT AND FISCAL SUSTAINABILITY IN SUB-SAHARAN AFRICA
DOI:
https://doi.org/10.61421/IJSSMER.2026.4511Keywords:
Generalised method of moments model, fixed effects model, fiscal sustainability, carbon emissions, foreign direct investmentAbstract
This paper empirically analyses the relationship between climate change, foreign direct investment, and fiscal sustainability in the sub-Saharan Africa (SSA) region. The study analyzed a sample of 966 country-year observations drawn from 23 SSA countries over the study period. The study employed the dynamic panel Generalised Method of Moments (GMM) model to test the hypotheses. Results based on the GMM model suggest that the lagged value of fiscal sustainability is negatively and significantly related with current fiscal sustainability, indicating adjustment dynamics in fiscal conditions over time. Furthermore, the regression results show that climate change is positively and significantly associated with fiscal sustainability, while foreign direct investment is also positively and significantly associated with fiscal sustainability. The post-estimation results confirmed the validity of the model, particularly through the AR(2), Sargan, and Hansen tests, which support the reliability of the instruments used in the dynamic panel estimation. The findings of the study provide valuable insights for policymakers, government leaders, investors, environmental regulators, and fiscal authorities in SSA. Strengthening climate-related fiscal planning and attracting productive foreign direct investment are critical for improving fiscal sustainability across the region. This study contributes to the growing literature on climate change, foreign direct investment, and fiscal sustainability in developing regions by providing new empirical evidence from the SSA context. It uniquely contextualizes the analysis within the SSA region, offering useful evidence to inform sustainable fiscal, environmental, and investment policies.
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