Do market-supporting institutions promote sustainable development? Evidence from developing economies

Abstract

An institutional structure may affect traditional drivers of development, such as foreign direct investment and economic growth, and emerging economies’ ability to achieve sustainable development. This study expands on this literature by assessing the role of market-supporting institutions in achieving sustainable development goals in 42 developing economies. Using various measures of market-supporting institutions and a dynamic panel data approach, we find that all institutions play an important role in achieving sustainable development. Furthermore, we show that foreign direct investment and economic growth have a positive indirect effect on sustainable development by promoting the quality of market-supporting institutions and adopting renewable power generation. Our results suggest that policymakers in developing countries should focus on the robustness of their market-supporting institutions to achieve sustainable development. • We show that all institutions contribute to achieving sustainable development. • FDI and economic growth have a positive indirect effect on sustainable development. • Traditional channels promote market-supporting institutions and renewable power. • Governmental regulatory systems help sustainable development policy implications. • Renewable energy and market institutions affect sustainable development.