Exploring the optimal threshold of FDI inflows for carbon-neutral growth in Africa

This study investigates the relationship between foreign direct investment (FDI) and CO₂ emissions in Africa, primarily emphasizing carbon-neutral growth. Employing advanced econometric methods like the Generalized Method of Moments (GMM), fixed effect, and Two-Stage Least Squares (2SLS), we identify critical threshold values for key variables, including economic growth, trade openness, human capital, financial development, inflation, and population growth. Our findings indicate that GDP significantly influences the FDI-CO₂ emissions relationship as economies expand, shifting from negative to positive, potentially leading to increased carbon emissions. Higher trade-to-GDP ratios are associated with reduced CO₂ emissions due to cleaner technologies and greener production practices. Additionally, financial development plays a pivotal role, enabling investment in sustainable technologies. Nations with a more skilled workforce are more likely to adopt sustainable practices. The influence of population growth on CO₂ emissions is complex, balancing increased demand with investments in clean technologies. The study recommends that African policymakers prioritize FDI aligned with carbon-neutral growth by promoting sustainability, investing in human capital, and carefully balancing population growth with sustainability.