Sustainable Foreign Direct Investment Research Articles

The link between Chinese belt and road initiative and foreign direct investment inflows in Southern Africa

This study investigates the association between infrastructure development in China's Belt and Road Initiative (BRI) and foreign direct investment (FDI) inflows to southern Africa, using a propensity score matching–difference-in-difference (PSM-DID) regression. The empirical examination is based on a sample of eight southern African countries selected based on data availability. We find that China's BRI has significantly positive effects on FDI inflows to southern Africa. Therefore, governments and development policy makers in southern African countries are recommended to devise supporting policies in order to ensure that the BRI leads to sustainable FDI inflows and sustainable economic growth. The study makes significant contributions to theory, policy, and practice. In policy and practice, our study is valuable for policy-making on driving FDI inflows. However, the context of the study is specifically southern Africa, hence, the results might not be generalizable to other African regions or Africa as a whole, so further research is needed to consider those areas.

Exploring the influence of sustainable regional planning on green economic growth: Evidence from Guangdong-Hong Kong- Macao Greater Bay Area and ASEAN+6

This study explores the influence of mining waste production on green economic growth in the ASEAN+6 and Guangdong-Hong Kong- Macao Greater Bay Area region spanning from 2000 to 2020. Employing ARDL (Autoregressive Distributed Lag) estimation and a comprehensive panel framework, the research reveals a notable adverse correlation: a 1% escalation in mining waste results in a 0.65% decline in green economic growth. Inefficient utilization of resources and inadequate waste management within the mining sector contribute to environmental deterioration, posing challenges to the sustainability of green industries. Furthermore, significant energy consumption from non-renewable sources during mining exacerbates the carbon footprint, obstructing advancements in green energy initiatives. The study also brings attention to a negative association between a 1% rise in inward Foreign Direct Investment (FDI) volume and a 0.39% decrease in green economic growth. To mitigate these unfavorable impacts, the research advocates for the promotion of sustainable FDI, the incentivization of green investments, and the implementation of rigorous environmental regulations.

The severity of foreign direct investment components on China's carbon productivity

Carbon dioxide emission reduction is one of the major pressures on China's current economic advancement, and the improvement of carbon productivity (CP) has become particularly relevant. Promoting sustainable foreign direct investment (FDI) can help improve carbon productivity. As a result, the need to assess the severity of FDI components on sustainable economic growth as the world economy interoperates and expands is imperative. Using 30 Chinese provinces, the study investigates the impact of FDI components on China's CP from 2006 to 2020. The spatial model is utilized in this study to assess the interactive influence of these components on CP. It was found that, while CP is significantly influenced by inbound FDI (IFDI), its spatial spillover impact is not significant. Conversely, outbound FDI (OFDI) negatively affects local CP, as well as significantly reduces CP through spatial spillover in nearby regions. Also, the developmental coordination of IFDI and OFDI significantly enhances the country's CP, primarily due to positive spatial spillover effects. There exists a regional heterogeneity exhibited by the influence of both IFDI and OFDI on CP. In the eastern region, the IFDI has a negative impact on CP. However, OFDI possesses a positive effect on CP in the eastern region and an adverse influence in the western, southern, and northern regions. These results together with the policy implications will provide great insights into encouraging green investment from foreign countries.

Sustainable FDI in the Digital Economy

The shift towards a digital economy should lead to changes in the allocation methods of foreign direct investment (FDI), especially given the reduced need to transfer physical assets. At the same time, the need to understand and examine the sustainability of FDI as a relevant attribute throughout the life cycle of a given investment should be emphasized. The paper seeks to answer the research question whether more sustainable foreign direct investment is attracted in the digital economy. Hence, the paper explores the interlinks between the sustainability attributes of FDI and the development of the digital economy. For this purpose, a cluster analysis under the conditions of the countries of the European Union is conducted. The results of the cluster analysis carried out for the two periods show certain similarities, especially within the Nordic, Visegrad, Balkan, and Baltic groups of countries. The first group mentioned can be characterized by advanced digital development as one of the possible driving forces to attract sustainable FDI. The remaining groups show certain differences in this regard. Based on the results, the paper brings some policy implications towards emphasizing the sustainability attributes of foreign direct investment in the digital economy, especially through the implementation of the concept of sustainable investment promotion policy.

Elongating the role of renewable energy and sustainable foreign direct investment on environmental degradation

Climatic variations and GHG emissions are the most debated issues of the current age economically, socially, politically and environmentally. An internationally legally binding treaty on climate change, the “Paris Agreement” is followed by G-8 countries to maintain environmental sustainability with green development. The research investigates the relationship of GHG emissions with renewable energy (RE), foreign direct investment (FDI), total population (TP), and trade (TR). The time span of 22 years is used for analytical purposes covering the period from 2000 to 2021 b y addressing the literary gap. The analytical procession found total population and trade increase GHG emissions because of its modern fundamental layers toxic human activities and polluted trade practices. The decreasing behavior toward GHG emissions has been determined by FDI and RE. The findings of this research have confirmed the long-run relationship among variables. They are evidence that the eco-innovative steps by G-8 countries significantly reduce GHG emissions directly or indirectly. Furthermore, the analytical outcomes indicate that innovative green development in renewable energy sector can reduce the GHG emissions pressure from this sector and contribute to net zero emissions. The extracting results have suggested policies for environmental practitioners and economic developers.

Does Sustainable Development Promote Foreign Direct Investment in Pakistan? An ARDL Analysis

Foreign direct investment (FDI) has become a cornerstone for the public and private sectors, especially in developing countries as it can enhance social overhead capital and employment opportunities. This study examines the association between sustainable development and foreign direct investment in Pakistan over the period 1972-2021 by using the ARDL estimation technique. The study has used various variables i.e., foreign direct investment, sustainable development index, tax, exchange rate, credit, broad money and trade. The findings reveal that exchange rate, credit, broad money and trade are positively related to foreign direct investment while the tax has a negative effect on FDI. The study also points out that there is a long-run association between sustainable development and FDI. The study recommends that policymakers may enhance foreign direct investment through sustainable development, taxes reduction, financial development, exchange rate stability and trade in Pakistan.

Influence of Exchange Rate on Foreign Direct Investment Inflows: An Empirical Analysis Based on Co-Integration and Granger Causality Test

Although it is widely recognized that Foreign Direct Investment (FDI) inflows have a dominant effect on economic growth of host countries, the determinants of FDI inflows are still unclear. Especially, about the effect of exchange rate on FDI inflow, the results reached by scholars vary across countries or regions. It is of great practical and theoretical significance to explore the influencing effects of exchange rate on FDI inflow and identify the mechanisms that underlie them in close association with regional economic characters so as to help local government implement targeted government policies to achieve sustainable FDI inflow and sustainable economic growth. For this purpose, the influencing effects and the influencing mechanisms of the exchange rate on FDI inflows are investigated for Zhejiang province, China, over 1985–2019 by employing the co-integration tests, vector error correction models, Granger causality tests, and impulse response tests. Empirical results indicate that there are long-term stable and unidirectional causal relationship between the exchange rate and FDI inflow. Continuous appreciation of RMB against USD discourages FDI inflow. The mechanism which underlies the long-term relationship is the wealth effect, rather than the cost effect or the demand effect. By contrast, in the short run, neither the exchange rate nor the three influencing mechanism has a significant impact on FDI inflow. These results suggest policy recommendations for improving FDI by accumulating human capital and improving infrastructure. These findings are also applicable for other countries or regions with similar economic characters.

Facilitating Sustainable Investment To Build Back Better

Foreign direct investment (FDI) flows are at a low point as a result of not only the COVID-19 pandemic but also restrictive FDI policies adopted in recent years. Investment facilitation has gained in importance as a set of practical measures to increase the transparency and predictability of investment frameworks and promote cooperation to advance development. Investment facilitation can help to reduce the transactional and administrative costs faced by foreign investors and contribute to a resilient and sustainable economic recovery. Discussions on a distinct set of investment facilitation policies and measures have gained momentum in recent years. Negotiations are undertaken at the bilateral and regional levels, for example, in the context of the Regional Comprehensive Economic Partnership (RCEP) or the Sustainable Investment Protocol of the African Continental Free Trade Agreement (AfCFTA). Another important initiative is underway among members of the World Trade Organization (WTO) which are negotiating an Investment Facilitation Framework for Development. This article develops a set of key recommendations for policy-makers on how investment facilitation frameworks can be designed to help attract sustainable FDI for sustainable development and recovery in general. These recommendations can be summarized in three guiding principles: contribute directly to sustainable development, focus on conflict prevention and management, and learn from experiences from other processes such as trade facilitation.

An ARDL Approach on the Nexus of Foreign Direct Investment and Export in Nigeria

The opening of the Nigerian economy to foreign investors via economic restructuring, to strengthen export accomplishment for efficient return resulting in increased exports and export competitiveness through foreign direct investments, has met with some pressures leading to neglect in output and closure of some businesses. This necessitated the study to examine foreign direct investment’s impact on export accomplishment in Nigeria from 1986 to 2019. Foreign direct investment, trade openness, money supply, rate of inflation and interest were the explanatory variables while export was the control variable. The Auto-Regressive Distributed Lag (ARDL) model was employed using time series data. The results of the analysis showed a positive effect of foreign direct investment on the country’s export though insignificant. Trade openness has a significantly positive influence, whereas money supply, inflation rate and interest rate were negative on export accomplishment. The conclusion derived from the results is a positive but insignificant relationship between foreign direct investment and export accomplishment in Nigeria while the reverse is the case for money supply, inflation and interest rate. The recommendation is that the Nigerian government through its policy formulators should encourage stable and sustainable foreign direct investment in a conductive economic and political environment for improvement of the nation’s productivity, international trade competitiveness, technological advancement and external reserves via export.

China carbon neutrality target: Revisiting FDI-trade-innovation nexus with carbon emissions

Since the Paris Agreement, countries around the globe have been striving to achieve their carbon neutrality targets. However, because China has one of the largest economies in the world, to achieve its targeted carbon neutrality, the roles of foreign direct investment (FDI), technological innovation (TI), and trade are crucial. Therefore, this study aims to introduce the level of trade, renewable energy consumption (REC), and FDI from the years 1995–2017 as new determinants in promoting a sustainable environment in China. The study employs advanced panel methods based on slope homogeneity and a cross-sectional dependence test. The results confirm a cointegration relationship for all models in this study, suggesting that gross domestic product and FDI positively affect carbon emissions. By contrast, foreign trade, REC, and TI are inversely associated with carbon emissions. Moreover, according to Chinese provincial data, the joint term for FDI with REC and TI is negatively associated with carbon emissions. The policy implications of this study suggest that to achieve sustainable FDI, TI should be encouraged to mitigate the pollution caused by FDI. There is a dire need to implement green practices and eco-friendly policies at a national scale.

Investment Facilitation for Development: A Toolkit for Policymakers

This publication combines insights and analytical expertise relevant to negotiating and implementing investment facilitation for development measures. It is intended to support the WTO negotiations of a multilateral framework on investment facilitation for development, as well as unilateral, bilateral and regional efforts to facilitate sustainable investment flows. The publication includes lessons from negotiating and implementing relevant WTO agreements, as well as suggestions for avoiding an undesirable interaction with other international investment agreements. It also offers a Sustainable Investment Facilitation Inventory containing numerous investment facilitation measures, including measures that directly contribute to the facilitation of sustainable foreign direct investment, as well as the proceedings of some 30 stakeholder consultations. Particular emphasis has been placed on the development dimension of investment facilitation. The publication is a resource for negotiators, policymakers and investment promotion agencies, and is the result of a joint project of the International Trade Centre (ITC) and the German Development Institute/Deutsches Institut fur Entwicklungspolitik (DIE).

Paving towards Strategic Investment Decision: A SWOT Analysis of Renewable Energy in Bangladesh

Bangladesh, being a developing country, needs an uninterrupted electricity supply to sustain and expand economic growth. The government’s strategic vision of 2021 and the international commitment under the Paris Agreement has meant to attract new capital investments for renewable electricity generation by diversifying energy blends, ranging from natural gas to more reliable coal technologies and renewable energy. To understand the practical implementation of such policies, this paper explores the key factors of the renewable energy (RE) sector of Bangladesh. This research has adopted the strengths, weaknesses, opportunities, and threats (SWOT) analysis method to examine the RE market and to understand the determinants of foreign direct investment (FDI) to attract new investments. For the analysis purposes, data were collected from extant literature and semi-structured interviews from the RE experts in Bangladesh. This study bears significance as it empirically reflects the government’s vision and strategy on RE development and analyzes its challenges and recommends accordingly. The analysis of the study reveals that the regulatory framework, tax haven/exemption, higher tariff, and presence of government guarantee are the major strengths to draw foreign investment. On the contrary, land acquisition, lack of coordination and collaboration among government authorities, administrative procedures, corruption, and access to local finance turns out to be the key weaknesses to consider while investing in this sector. In terms of the external factors, increasing energy demand, increasing global awareness of climate change, and decreasing cost of RE setup equipment act as potent opportunities; while the dominance of fossil fuel and discontinuity of energy policies should be taken as threats that can hinder the flow of investment in this sector. Hence, in order to attract sustainable FDI in the RE sector, several key areas need to be strengthened in the short, medium, and long-term. These are: (i) regulations on non-discriminatory treatment to foreign investors; (ii) control of corruption; (iii) protection of intellectual property rights; and (iv) coordination and collaboration between ministries.

Assessing Sustainable Foreign Direct Investment Performance in Malaysia: A Comparison on Policy Makers and Investor Perceptions

Sustainable foreign direct investment (SFDI) contributes to the development of the economic, environmental, and social aspects in rational governance practices in Malaysia. Prior studies lack the integration and synthesis of the SFDI attributes from the policymakers and foreign investors’ perceptions. These attributes are measured through the qualitative information and subjective perceptions and need to transform into comparable values. The fuzzy Delphi method is applied to identify the valid set of SFDI attributes and confirms the validity and reliability of these attributes. Moreover, prior studies have not examined the importance and performance of those valid attributes in qualitative information. The fuzzy importance and performance analysis is proposed to assess the attributes’ importance and performance level. The results show that financial, macroeconomic, and institutional policy aspects are among the most important SFDI attributes, together with environmental and social aspects. This study identifies the discrepancies between policymakers and foreign investors and suggests that the financial aspect is the priority of foreign investors that needs to be concentrated for improvements; meanwhile, the institutional and policies and social aspects in performance level are presented as a big contradistinction. The theoretical and policy implications are discussed.

Making FDI More Sustainable: Towards an Indicative List of FDI Sustainability Characteristics

Abstract Reaching the Sustainable Development Goals has become the lodestar of development policymaking. Increased sustainable Foreign Direct Investment (FDI) flows to developing countries can contribute to reaching the Goals. This article analyzes 150 instruments (treaties, standards, codes) prepared by key stakeholder groups in the FDI space bearing on the relationship between host countries and foreign investors, to identify FDI sustainability characteristics along the following four dimensions: economic, social and environmental development and governance. These instruments indicate especially the contributions government expect multinational enterprises (MNEs) to make to host countries and those MNEs expect to make to host countries. The analysis yields a set of indicative ‘common FDI sustainability characteristics’, and ‘emerging common FDI sustainability characteristics’. These characteristics can guide various stakeholder groups that seek to increase the contribution of FDI to development; the World Trade Organization’s Structured Discussions concerning an investment facilitation framework for development; and to arbitrators seeking to take the development dimension into account when deliberating investor-state disputes.

Role of financial development, economic growth & foreign direct investment in driving climate change: A case of emerging ASEAN

In the context of remarkable economic growth and financial development in the emerging economies of East Asia, this paper attempts to shed light on the ecological consequences (CO2 emission) of economic growth, foreign direct investment and financial development in the selected ASEAN-5 economies. Drawing on the data from 1982 to 2014, we employed a set of quantitative techniques for panel data analysis which entailed Dynamic Ordinary Least Squares (DOLS) and Fully Modified OLS (FMOLS) approaches. Our findings indicate that financial and economic development, as well as FDI, have a statistically significant long-run co-integrating relationship with environmental degradation (CO2 emissions) in the under analysis economies. It showed that in ASEAN-5 countries, economic growth, financial development and FDI leads to an increase in environmental degradation. The quadratic term for economic growth showed a negative impact on environmental degradation i.e. Environmental Kuznets Curve (EKC). Our key findings manifest and emphasise the importance of appropriate policies for more inclusive economic and financial development and sustainable foreign direct investment which does not impede on the environment.

Moving the G20’s investment agenda forward

This article argues that it is of paramount importance that the G20 pays attention to the mounting challenges faced by the international investment regime. This is all the more important because international investment is crucial to advance sustainable development, especially in developing countries. For both immediate and long-term reasons, investment policies should therefore be a core item on the agenda of the G20 and the Trade and Investment Working Group in particular. The present article makes two sets of recommendations: first, the G20 should continue its work on international investment policy reform and initiate steps to operationalise the Guiding Principles for Global Investment Policymaking; second, the G20 should support ongoing WTO discussions on investment facilitation suggesting that they should aim not only at facilitating more foreign direct investment (FDI), but sustainable FDI. The policy recommendations provide an input for the Japanese G20 presidency in 2019.

How Sustainable is the Foreign Direct Investment? In the Case of Malaysia

Foreign Direct Investment (FDI) is one of the economic indicators of a country. Having a sustainable FDI would lead to a sustainable economy. In order to sustain the FDI, its determinants and how the changes in those determinants affect the FDI must be analyzed carefully. Once the impact of the determinants is known, then the next steps of making decisions or policies related to sustainable FDI, could easily and effectively be done. Different from previous studies, this paper examines to what extent the inflows of FDI would be related and affected by the environment, social and governance (ESG) factors, the vital sources for sustainable investment. The environment, social and governance factors include natural environment, natural resources, human capital, population, infrastructure, trade openness, and corruption. Those annual time series data were analyzed by using the ordinary least square regression and Granger causality analyses. The findings show that majority of the changes in those determinants have significant relationship with the FDI inflows. Many of the determinants are positively related to the FDI except for trade openness which is having negative relationship with FDI. However, changes in natural resources and infrastructure have no significant relation with the inflows of FDI. The result suggests that an emerging country like Malaysia, must continue enhancing those social, environmental and governance factors in the country to encourage the incoming of sustainable FDI, thus to develop sustainable economy.

Promoting Successful and Sustainable Foreign Direct Investment through Political Risk Mitigation Strategies

Political risk is a critical component of international trade and it is often the source of concern for businesses willing to invest abroad in light of the limited ability of legal instruments to protect them against it. That is why further political risk minimization has traditionally been done through investor-oriented strategies that maximize the interests of the investor. These interests sometimes clash with the interests of the State: the State seeks to promote sustainable development interests while the private investor is pursuing its own interests. These are the situations where it is necessary to avoid conflict by aligning the interests of the foreign actor with the local polity, which can be done through mutually beneficial (i.e. both for states and for private trade actors) political risk mitigation strategies. In this regard, this paper demonstrates how such strategies can incentivize international trade actors to undertake commercial operations in a sustainable manner.

The Evolving International Investment Law and Policy Regime: Ways Forward

International investment needs are tremendous. This requires that the international investment regime constitutes a framework for increased flows of sustainable foreign direct investment for sustainable development. The international investment regime covers what has become the single most important form of international economic transactions and the most powerful vector of integration among economies: foreign direct investment and non-equity forms of control by multinational enterprises over foreign production facilities. Among the most striking features of the global investment landscape over the past decade has been the rise of developing economies as outward investors. Yet despite the economic importance of international investment, there is no overarching set of rules governing this subject matter. Instead, the regime consists of over 3,000 international investment agreements, the great majority of them bilateral investment treaties. The present paper examines the state of the international investment law and policy regime and how its governance might be enhanced. Following a thorough analysis of the background to rule-making in international investment, the paper puts forward a set of policy options with the overall objective of increasing sustainable investment flows, particularly to developing and least developed countries, within the framework of a widely accepted international investment law and policy regime. The interrelated policy recommendations fall under five main categories: expanding the purpose and updating the substantive and procedural provisions of international investment agreements; developing an international support programme for sustainable investment facilitation; addressing the challenge of managing and resolving disputes, especially by further institutionalizing the investor-state dispute-mechanism which lies at the heart of the regime; complementing this effort by establishing an Advisory Centre on International Investment Law; and initiating a process towards the negotiation of a comprehensive international framework on investment that would establish basic rules of engagement among principal stakeholders. The paper ends with a recommendation on procedural issues, namely the launch of an informal and inclusive consensus-building process to accompany and help efforts geared at reforming the international investment regime for increased flows of sustainable foreign direct investment.

Foreign Direct Investment and Gross Domestic Product in Ghana

This paper addresses how Governments of Ghana has made tremendous effort over the past decade at attracting sustainable Foreign Direct Investment (FDI) inflows to boost its Gross Domestic Product (GDP) and other economic indicators. It is noteworthy that Ghana is well endowed with rich natural resources comprising Gold, Oil, Timber, Cocoa, Bauxite, manganese etc. which form the backbone of its economy and dominates the main sources of foreign exchange(Budget statement, 2004).The low foreign exchange earnings on its export product as a result of its primary state compels it to expostulate to international financial and technical assistance at well as making giant strides to attract Foreign Direct Investment inflows to Ghana to supplement its locally generated revenue. This study explores whether FDI inflows have had any significant impact on GDP growth rate, the results indicate that FDI inflows have had an influence on GDP growth, it is however important to note that there are other important macroeconomic variables which need to be considered.