Sustainable FDI, green industrialization, and the macro debt-equity mix in manufacturing-led Sub-Saharan Africa: A System GMM analysis

Abstract

This study examines how sustainable foreign direct investment (SFDI) shapes green industrialization (GIN) and the macro debt-equity ratio (DER) in manufacturing-led Sub-Saharan African economies. Using a dynamic System GMM estimator on unbalanced panel data covering 2014 to 2024, the analysis finds that SFDI is negatively associated with both GIN and DER, suggesting that foreign capital inflows in the region remain concentrated in resource-intensive activity rather than environmentally transformative production, consistent with the pollution haven hypothesis. Higher GIN is associated with a lower DER, indicating that environmental upgrading is linked to a shift toward equity-based financing and reduced debt dependence. A mediation analysis shows that GIN carries a modest but statistically significant indirect channel between SFDI and the debt equity mix, though this pathway is constrained by weak institutions and limited absorptive capacity. The results imply that SFDI alone is insufficient to drive structural transformation in SSA manufacturing economies, and that its benefits depend on complementary governance reforms, environmental regulation, and targeted green industrial policy.