FDI determinants in ASEAN: the role of environmental SDG compliance, CO2 intensity of GDP, and governance

Abstract

This paper provides empirical evidence on the effect of the selected variables CO2 intensity of GDP, an environmental compliance score based on the Sustainable Development Goals, as well as governance, on foreign direct investment flows. The question posed is how these proxies for environmental policy stringency affect the attractiveness to foreign direct investment among ASEAN members. Methodologically, the study employs a PCSE (panel-corrected standard errors) estimator with an AR(1) correction. The scope of the research covers a panel of ASEAN countries over the period of 2001 to 2020. Findings suggest that CO2 intensity has a significant positive association, whereas environmental Sustainable Development Goal compliance and governance could not provide measurable effects. Nonetheless, the findings motivate broader reflection on the composition and quality of FDI relevant to ASEAN’s development, notwithstanding the study’s limited statistical power.