The impact of foreign direct investment, economic growth and renewable energy on climate change: The key role of governance in sustainable development

Abstract

Purpose: The paper aims to analyze the impact of net foreign direct investment (FDI) inflows and renewable energy consumption on climate change. At the same time, the study examines the role of governance in mitigating the impact of climate change on countries. Design/methodology/approach: The generalized least squares method is applied to a panel data set of 152 developed and developing countries in the world over the period from 2003 to 2022. To increase the reliability and accuracy of the research results, the author conducts a reliability check by using alternative measures for the dependent variable and adjusting for endogeneity using the instrumental variable method (two-stage least squares method). Findings: Empirical findings demonstrate that there is a positive relationship between foreign direct investment, economic growth and climate change. In turn, the use of renewable energy and improved governance contribute to mitigating the climate change problem for countries. Practical implications: This paper provides a comprehensive framework for analyzing investment, growth and governance in a country in the context of climate change. This framework allows countries to identify opportunities and challenges in their development process and to harmonize these factors in the process of moving towards sustainable development goals. Originality/value: The author’s research adds knowledge and foundation to the complex relationship between economic, political, environmental and social factors. The findings from the research can be applied by investors, businesses in the micro system or for the government to build and adjust appropriate policies for investment and development