The Impact of ESG on Foreign Direct lnvestments in Developing and Emerging Markets

Abstract

This thesis studies whether and how ESG (environmental, social, and governance) factors affect FDI (foreign direct investment) inflows to emerging and developing markets. We use a panel data analysis to test the relationships between FDI inflows and sustainability indicators, incorporating country-fixed effects for 59 emerging and developing countries over 22 years (1998-2019). We find evidence that carbon emissions have a negative and significant impact on attracting FDI inflows, while the impact of other ESG variables including political stability, property registration, contract enforcement and human development is insignificant. We also find evidence that annual growth in GDP per capita, trade openness and infrastructure have a positive and significant impact on FDI. When country-fixed effects are introduced to the model, all factors are insignificant except infrastructure which has a positive and significant relationship with FDI.