Work

Green finance moderates the association between foreign direct investment and green economic growth in Southeast Asian economies

Year: 2026

Type: article

Abstract: Purpose: This study explores the impacts of foreign direct investment (FDI), financial development (FD), and green finance (GF) on green economic growth (GEG) in seven Southeast Asian economies - Cambodia, Indonesia, Malaysia, Myanmar, the Philippines, Thailand, and Vietnam - over the period 2013-2023. It particularly emphasizes evaluating GF's moderating effect on the FDI-GEG relationship, shedding light on sustainable investment dynamics in emerging markets amid global environmental pressures. Methodology: Drawing on an unbalanced panel dataset, we implement robust panel econometric approaches: pooled OLS, fixed effects (FE), random effects (RE), feasible generalized least squares (FGLS), and dynamic GMM. GEG is operationalized via Adjusted Net Savings (ANS), capturing genuine wealth sustainability beyond GDP. GF is gauged by renewable energy investment inflows, reflecting eco-friendly capital mobilization. Findings: The analysis uncovers that FDI (β < 0) and FD (β < 0) adversely impact GEG, driven by pollution-laden projects in regulatory-lax settings that prioritize short-term gains over ecological integrity. Conversely, GF significantly advances GEG (β > 0), channeling funds into renewables and green infrastructure for long-term viability. Pivotal is the positive, significant FDI×GF interaction (β = 0.004, p < 0.01), evidencing GF's moderating role: exceeding ~USD 200 million in GF annually offsets FDI's environmental tolls, yielding net green growth gains. Controls affirm GDP growth and trade openness as GEG boosters, with inflation as a hindrance. Implications : Insights urge ASEAN policymakers to craft synergistic policies blending FDI scrutiny with GF subsidies, ensuring foreign investments propel sustainable development and resilience in these vibrant yet vulnerable economies.

Source: Discover Sustainability

DOI: 10.1007/s43621-026-04795-1