Can Sustainable Development Induce Foreign Direct Investment? Analysis of the Complex Inward and Outward Flows of Investment in European Union Countries

Abstract

The transfer of polluting industries from developed to developing countries and the often-detrimental effects this has on meeting sustainable development goals is well documented, but an analysis of the underlying reasons for this transfer has not been widely examined in the literature. This study seeks to analyse the complexity of Foreign Direct Investment in developed countries and its environmental impacts, by measuring inward and outward investment. A Panel Quantile Regression was undertaken for 14 European Union countries between 1995 and 2018. The results show that, whether countries are recipients or sources of high levels of FDI, the drivers of inward and outward investment are the same, and that sustainable development and renewable energy are both drivers of FDI. The paper also finds that outward Foreign Direct Investment is not driven by environmental regulation, and the regulatory quality of the European Union countries improves its foreign investment balance.