IDEAS home Printed from https://ideas.repec.org/a/taf/oaefxx/v12y2024i1p2437011.html
   My bibliography  Save this article

Foreign direct investment and green GDP: the thresholds of financial development for economic policies

Author

Listed:
  • Ngoc Toan Bui
  • Thu-Trang Thi Doan

Abstract

This study aims to examine the impact of foreign direct investment (FDI) on green GDP while analyzing the role of financial development thresholds in moderating the relationship in the ASEAN-6 countries. These are six leading countries in the ASEAN region. The study employs the Generalized Method of Moments (GMM) regression to estimate the models, in combination with Bayesian regression to check the results’ robustness. The findings indicate that FDI plays an important role in fostering green GDP in the countries. Furthermore, the financial development thresholds can moderate this impact. Specifically, the estimation results used threshold effects reveal that the threshold value for the financial market index is 0.38, and for the financial institution index, it is 0.68, which both represent financial development. The GMM and Bayesian regression results consistently show that the positive impact of FDI on green GDP becomes evident only when financial development surpasses these threshold values. Notably, financial institutions have shown themselves to be more effective than financial markets in amplifying this impact. These findings provide a reliable foundation for the ASEAN-6 countries to develop appropriate economic policies to promote green GDP.FDI is a critical source of capital for many countries globally, particularly for those lacking sufficient funds to foster economic growth while safeguarding the environment. However, most FDI-receiving countries are still struggling to enhance their ability to attract and absorb this capital. To address this issue, this study aims to analyze the impact of FDI on green GDP in the ASEAN-6 countries and also to clarify the moderating role of financial development thresholds in this impact. The first key finding reveals that FDI has a positive impact on green GDP in the ASEAN-6 countries, affirming the importance of FDI in promoting green GDP there. Second, the results reveal the existence of threshold values for both the financial market development and financial institution development indices. The positive effect of FDI on green GDP only becomes evident when financial development exceeds these values. Notably, financial institutions show a more effective role than financial markets in amplifying the impact of FDI on green GDP. These findings suggest that the ASEAN-6 countries should make more efforts to attract FDI while simultaneously improving their domestic financial systems to enhance their capacity to absorb this capital. The findings also provide valuable empirical evidence for researchers in this field. Additionally, the study offers meaningful insights for policymakers in the ASEAN-6 countries to identify suitable economic policies aimed at improving FDI absorption capacity, thereby boosting green GDP growth.

Suggested Citation

  • Ngoc Toan Bui & Thu-Trang Thi Doan, 2024. "Foreign direct investment and green GDP: the thresholds of financial development for economic policies," Cogent Economics & Finance, Taylor & Francis Journals, vol. 12(1), pages 2437011-243, December.
  • Handle: RePEc:taf:oaefxx:v:12:y:2024:i:1:p:2437011
    DOI: 10.1080/23322039.2024.2437011
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/23322039.2024.2437011
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/23322039.2024.2437011?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:oaefxx:v:12:y:2024:i:1:p:2437011. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/OAEF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.