Environment And Direct Foreign Investment: Empirical Insight From Green Economy

Abstract

In the evolving landscape of global finance, the pursuit of economic growth increasingly collides with ecological sustainability. This investigation examines how environmental factors, specifically CO2 emissions, research and development (R&D) expenditure, and renewable energy consumption, influence direct foreign investment inflows under the paradigm of green capitalism. As environmental regulation, innovation, and sustainability energy transactions become central to investment decision-making, understanding their role in shaping global capital flows is both timely and critical. Using a panel data research design, this investigation analyzes secondary data from cross-national resources like the World Bank. Employing descriptive analysis, OLS, and panel regression with fixed effects, the analysis examines how environmental factors indicators correlate with FDI patterns over time. Findings reveal that FDI inflows are substantially associated with rising CO2 emissions, supporting the Pollution Haven Hypothesis in less regulated or politically constrained economies. Conversely, R&D expenditures substantially reduce emissions, emphasizing innovation’s moderating role in the FDI environment nexus. Renewable energy consumption, while theoretically efficient, showed a statistically weak association with environmental performance, possibly due to scale or implementation lags. These results underscore the contradictory role of FDI in sustainable development: while it fuels economic modernization, it may exacerbate environmental degradation without targeted green policies. The investigation urges policymakers to embed environmental safeguards within investment frameworks and recommends future research to integrate disaggregated FDI types, governance indicators, and qualitative policy to analyses to align capital better flows with ecological objectives.

Keywords:  Governance Indicators, Green Capitalism, FDI Inflows, R&D Expenditures, CO2 Emissions, Renewable Energy Consumption, Sustainability, Green Policies