Do Environmental, Social, and Governance (ESG) Factors Affect Foreign Direct Investment in Asian Countries?

Abstract

FDI inflows into Asian countries, especially emerging economies, have continued to increase significantly, even during the COVID-19 pandemic, contributing to an average of 30% of FDI globally from 2010 to 2022 (UNCTAD, 2023). Numerous earlier research has examined the variables influencing FDI attraction, however, we focus on clarifying how ESG factors influence the attraction of FDI capital flows in 31 Asian countries from 2010 to 2020. The governments in the region have prioritized sustainability in their construction industries and set some of the most aggressive green targets (Pan, 2021). The study applies the least squares regression model, the random effects regression model, and the fixed effect regression model. Notably, FDI inflows show a positive correlation with lower CO2 emissions per capita. However, the impact of the Human Development Index (HDI) on FDI remains inconclusive, as higher HDI levels could either attract or deter foreign investments due to labor cost variations and regulatory factors. Or vice versa, countries with a high HDI can attract FDI, but empirical evidence from the research sample does not indicate a correlation between HDI and FDI. In contrast to our initial assumptions, HDI does not correlate with FDI attraction in Asia's developing nations. 

Received: 9 January 2025 / Accepted: 23 February 2025 / Published: 02 March 2025