Revaluating the Sustainable Development Thesis: exploring the moderating influence of Technological Innovation on the impact of Foreign Direct Investment (FDI) on Green Growth in the OECD Countries

Abstract

The Sustainable Development Goals (SDGs) advocate for advancing green growth, a concept that balances economic prosperity with environmental protection. At the core of this vision are principles of sustainable consumption, production, and energy usage, all aimed at mitigating climate change and safeguarding ecosystems. This study investigates how technological innovation influences the relationship between Foreign Direct Investment (FDI) and green growth in OECD member countries. Specifically, we examine two facets of green growth: production-based CO2 productivity and demand-based CO2 productivity. We employ empirical analyses using the EKC and STIRPAT framework, which includes Ordinary Least Squares (OLS), smoothed instrumental-variables quantile regression (SIVQR), and System GMM methodologies, to uncover significant insights. Our analysis reveals that FDI impedes green growth, while technological innovation is pivotal in enhancing it. This pattern holds steady across various time frames and renewable energy sources. Furthermore, our findings indicate that combining FDI and technological advancement leads to heightened production-based CO2 productivity but diminished demand-based CO2 productivity. We also identify the presence of an environmental Kuznets curve for production-based CO2 productivity. Adding to significant scientific value by demonstrating how technological innovation moderates FDI's impact on green growth in OECD countries, we advocate for fostering collaborative partnerships between foreign investors and local innovators to leverage global expertise while advancing green objectives. Additionally, policy interventions should focus on stimulating demand for eco-friendly products and services to bolster demand-based CO2 productivity.