The Impact of the Institutional and Environmental Factors on Sustainable FDI: Evidence from ASEAN Economies

The growing importance of FDI among developing countries has led to a huge volume of empirical work on FDI. However, there is a dearth of research on factors that affect sustainable FDI in Southeast Asian countries. Existing studies on Southeast Asian countries mainly focus on macroeconomic variables like GDP, inflation rate, trade openness, etc. and overlook the crucial role that institutional, social and environmental factors might play in determining the sustainable FDI in Southeast Asian countries. The purpose of this chapter is to empirically analyze the impact of institutional and environmental factors on sustainable FDI. The data were collected from world development indicators, United Nations Development Program and world governance indicators of the World Bank for the period from 2000 to 2019. To examine the impact of environment variable on sustainable FDI, panel data were utilised. GDP, GDP per capita, trade openness institutional variables, educational index and CO2 emission were taken to establish the relationship between sustainable FDI and CO2. To inspect multicollinearity, VIF was used; to check autocorrelation, the Woodbridge test of autocorrelation was used; and for investigating heteroscedasticity, the log likelihood ratio test was used. Hausman test was used to decide whether the fixed effect model or random effect model is more appropriate. We found that there was a problem of heteroscedasticity in the data and the fixed effect model was appropriate for the given dataset. The results established that macroeconomic and environmental variables were significant for sustainable FDI in ASEAN economies.