Environmental Sustainability and Foreign Direct Investment in East Africa: Institutional and Policy Benefits for Environmental Sustainability

Persistent drought is not a unique phenomenon in East African countries, different research findings cite different reasons for it, but the environmental problem is currently a major concern worldwide and in East African country (EAC) the problem is not an exception to this phenomenon; policymakers and researchers are interested in knowing the cause in order to mitigate environmental degradation and support policies and institutions for environmental sustainability. Therefore, this study examines the environmental sustainability laws and institutions in 18 EAC to determine the relationship between foreign direct investment and environmental quality. Using the generalized method of moments for analysis, the results show, among other things, that foreign direct investment, when associated with environmental sustainability policies and institutions, improves environmental quality in the long run while degrading it in the short run. Long- and short-run environmental improvements in EAC are also enabled by domestic investment, environmental sustainability institutions, and policies. The study, therefore, concludes that environmental sustainability institutions and policies are critical in EAC because they improve environmental quality and interact with foreign direct investment in the long run. Therefore, the study recommends that policymakers and other stakeholders in EAC take action to improve environmental quality and sustainable economies.