The Impact of Monetary Policy on the Transformation to Circular Economy: Does Foreign Direct Investment Speak?

Abstract

Our paper examines the relationship between State Bank of Vietnam's implementation of monetary policies, Foreign direct investment inflows, and the country's move toward a circular economy. By using the PLS-SEM method with 330 observations, the study demonstrated that the positive impacts of the State Bank of Vietnam's monetary policies will aid in promoting Vietnam's transition to the circular economy, either when the State Bank offers a contractionary or expansionary or sustainable monetary policy. Moreover, when a country receives foreign direct investment, it tends to encourage companies' ability to create green, environmentally friendly products. Foreign direct investment inflows also stimulate a country to the transition to circular economy. Our research highlights the regulatory factor of Foreign Direct Investment capital that will increase 0.204 and 0.07 levels of impact between stable and expansionary monetary policy on the shift to circular economy. The results of this study contribute new factors in the theory of circular economy as well as policy implications for the State Bank of Vietnam, thereby aiding in the State Bank's development of an appropriate monetary policy to encourage foreign direct investment and the transition to the circular economy.