Three-economy study links green investment, governance and infrastructure

A simultaneous-equation analysis of South Africa, Egypt and Nigeria from 2008 through 2023 found that green foreign direct investment, governance quality and infrastructure development are closely interconnected, with greenfield projects accounting for 71.9% of green investment inflows. The result suggests that attracting environmentally oriented capital can feed back into the institutions and physical systems that make further investment more attractive.

The study examined three major emerging African economies using a three-stage least squares model designed to address endogeneity among green foreign direct investment, governance and infrastructure. By treating the three factors as parts of a system of simultaneous equations, the researchers sought to capture relationships that may run in more than one direction rather than assuming that each factor independently determines the others. The reported estimates support a reciprocal pattern: green investment can contribute to stronger governance and infrastructure, while improvements in those conditions can help sustain investment.

Greenfield investment emerged as the dominant component of green foreign direct investment in the analysis, representing 71.9% of inflows. This finding was interpreted as supporting the Pollution Halo Hypothesis, according to which new investment operations are associated with stronger environmental performance in host economies. The result does not mean that every greenfield project automatically produces identical benefits, but it identifies new-project investment as the largest measured channel in the study’s three-country sample. The analysis also found infrastructure quality to have a strong direct relationship with green foreign direct investment.

Governance appeared to matter both directly and indirectly. The model indicated that governance quality is a pivotal determinant of green investment, while also operating indirectly by enabling better infrastructure. In other words, the estimated connections form a cycle rather than a one-way sequence: investment may improve the investment environment, governance can help infrastructure advance, and stronger infrastructure can support additional green capital. The authors describe this as a “virtuous cycle,” although the finding is based on modeled relationships across three countries over 16 years rather than a controlled experiment or evidence that every country will follow the same path.

The results point toward integrated policy approaches that facilitate new green projects while improving governance and infrastructure in parallel. Their practical implication is that investment promotion and institutional development should not be treated as separate agendas. The study concludes that attracting transformative green capital requires coordinated attention to new-project facilitation and synchronized upgrades to governance and infrastructure, with incoming investments also used to improve the host environment. Because the evidence covers South Africa, Egypt and Nigeria from 2008 to 2023, its application to other emerging economies remains untested, and the research does not establish how quickly the reported feedback cycles develop or which specific policies would generate them.

Subject of Research: Relationships among green foreign investment, governance quality and infrastructure in South Africa, Egypt and Nigeria

Article Title: Interconnection between green governance indicator, infrastructure index, and green foreign direct investment in emerging countries

Article References: Tuo, S. J., Huo, C., Soro, G. A., Kassi, D. F., & Rech, F. (2026). Interconnection between green governance indicator, infrastructure index, and green foreign direct investment in emerging countries. Humanities and Social Sciences Communications. https://doi.org/10.1057/s41599-026-08027-9

Image Credits: AI Generated

DOI: 10.1057/s41599-026-08027-9

Keywords: green investment, foreign direct investment, green governance, infrastructure quality, South Africa, Egypt, Nigeria, greenfield projects, emerging economies, sustainable development, Interconnection, between