Navigating the Global Knowledge Economy: Temporal Effects of Regulatory Environment and FDI on Sustainable Development in Asia–Pacific

Abstract

In the knowledge economy, sustainable development is an important topic of discussion among policymakers and researchers. Existing literature provides a scant view of sustainable development, and the dual effect of global investment and the institutional system of the countries is largely overlooked. This study investigates the immediate and long-term impacts of foreign direct investment (FDI) and institutional factors on four Sustainable Development Goals (SDGs) in the Asia–Pacific region over a span of 23 years (2000–2022). Utilizing panel data from 29 countries, we examine the relationship between FDI and SDG2, 5, 12, and 15 while considering moderating effects of control of corruption and government effectiveness. Results from the autoregressive distributed lag (ARDL) models reveal significant influences of FDI and institutional factors on SDGs, particularly in the long run. FDI positively affects SDG2 (Zero hunger) and SDG5 (Gender equality) while exhibiting a negative impact on SDG12 (Responsible production and consumption). Finally, the SDG15 (Life on land) is also positively affected by FDI. Moreover, institutional indicators such as control of corruption (COC), government effectiveness (GE), and regulatory quality significantly contribute to SDG achievement, with notable moderation effects of COC and GE on the FDI-SDG nexus. Pairwise panel causality test highlights different forms of causality among the variables, highlighting the complex interplay between FDI, institutional factors, and SDGs. Overall, our findings emphasize the importance of FDI and effective institutional frameworks in advancing sustainable development objectives, particularly in addressing issues of food security, gender equality, and responsible production and consumption in the Asia–Pacific region.