Unravelling the Link Between Bilateral Investment Treaties and Environmental Sustainability in Sub-Saharan African Countries

Abstract

This study investigates the practical relationship between foreign direct investments (FDI), bilateral investment treaties (BITs), income, energy consumption and CO₂ emissions in sub-Saharan African (SSA) countries between 2000 and 2020. To address the challenges of heterogeneity, non-stationarity and cross-sectional dependence, we employed the dynamic common-correlated effects estimation method introduced by Chudik and Pesaran. This methodology provides reliable results for panel datasets of significant to moderate size. The results indicate a direct connection between FDI and CO₂ emissions, providing evidence for the pollution haven theory. Notably, BITs also have a favourable and substantial impact on environmental degradation in SSA countries. These findings emphasise the need for effective environmental regulatory frameworks and management techniques. Achieving sustainable growth and economic development in SSA countries requires prioritising the adoption and implementation of carbon reduction strategies. SSA countries can attain balanced growth between economic progress and environmental preservation by reducing the negative effects of FDI inflows and BITs on environmental sustainability. This study expands the current knowledge base by providing insights into the complex relationship between FDI inflows, BITs, income, energy consumption and CO₂ emissions in SSA countries. The findings offer valuable guidance to policymakers and stakeholders in formulating and executing effective environmental policies and regulations to promote sustainable development in the area.