The effect of sustainability on foreign direct investment inflows: evidence from developing countries

Abstract

Purpose This paper aims to analyse, the issue concerning the quality of inward foreign direct investments (FDI) by empirically investigating the role of four sustainability determinants of FDI, namely, economic, environmental, social and governance using data from 22 developing countries of the Asian region over a period from 2000–2016. Design/methodology/approach The methodology adopted to achieve this purpose is dynamic panel estimation (two-step difference generalised method of moments) by developing three econometric models. The data is sourced from the World Development, Worldwide Governance Indicators, International Telecommunication Union and the United Nations Conference on Trade and Development. Findings The econometric results indicate that, in general, control of corruption, political stability and electricity consumption influence sustainable FDI favourably; and CO2 emissions lower the extent of sustainable FDI. The result underlines deficiencies in the information technology aspect, which has a non-significant yet positive relationship with sustainable FDI. A pertinent finding of this study is that the past value of FDI inflows increases the current year’s FDI inflows in developing countries. Practical implications The findings related to gender and information technology aspects found in this paper will be of interest to both researchers and policymakers for substantially reorienting the sustainability attributes to foreign investment. Originality/value The authors’ main contributions are to encapsulate the conceptual framework into an empirical model by combining all the four dimensions, namely, environmental, economic, social and governance for developing countries.