Publicação
The Impact of ESG Profiles on Foreign Direct Investment: A Cross-Country Fuzzy Clustering Approach
| Resumo: | As the global focus on sustainable development intensifies, both policymakers and investors are placing greater importance on environmental, social, and governance (ESG) criteria in economic decision-making. Understanding how ESG performance affects cross-border capital flows is crucial for countries seeking to attract Foreign Direct Investment (FDI) that supports long-term, responsible growth. However, the specific influence of ESG performance on FDI remains not fully understood. This study addresses this gap by analyzing a panel dataset of 15 countries from 2010 to 2020. Countries were classified into six ESG profiles using the Fuzzy CMeans clustering algorithm, and the relationship between these clusters and FDI inflows was examined using a fixed effects panel regression model. The results show that ESG cluster membership does not have a statistically significant effect on FDI inflows, suggesting that aggregated ESG profiles alone may not directly drive foreign investment decisions. Further analysis highlights governance as the most influential ESG dimension, while environmental and social components display weaker and inconsistent associations with FDI. These findings are supported by a Latent Dirichlet Allocation (LDA) topic modeling analysis of academic literature, which shows that governance themes dominate the ESG discourse, with environmental and social topics being less prominent. Overall, while ESG practices are increasingly integrated into policy and investment frameworks, their measurable effect on FDI remains limited. These findings suggest that policymakers seeking to attract FDI should not only pursue broad ESG improvements but also focus on strengthening governance institutions and regulatory frameworks. For investors, the results highlight the importance of looking beyond aggregate ESG scores to assess the underlying drivers of institutional quality and regulatory stability that more directly shape investment opportunities and risks at the country level. |
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| Autores principais: | Figueiredo, Maria Catarina Pinto Tavares |
| Assunto: | ESG Foreign Direct Investment Fuzzy Clustering Governance Sustainable Investment Sustainable Development SDG 8 - Decent work and economic growth SDG 12 - Responsible production and consumption SDG 16 - Peace, justice and strong institutions |
| Ano: | 2025 |
| País: | Portugal |
| Tipo de documento: | dissertação de mestrado |
| Tipo de acesso: | acesso embargado |
| Instituição associada: | Universidade Nova de Lisboa |
| Idioma: | inglês |
| Origem: | Repositório Institucional da UNL |
| Resumo: | As the global focus on sustainable development intensifies, both policymakers and investors are placing greater importance on environmental, social, and governance (ESG) criteria in economic decision-making. Understanding how ESG performance affects cross-border capital flows is crucial for countries seeking to attract Foreign Direct Investment (FDI) that supports long-term, responsible growth. However, the specific influence of ESG performance on FDI remains not fully understood. This study addresses this gap by analyzing a panel dataset of 15 countries from 2010 to 2020. Countries were classified into six ESG profiles using the Fuzzy CMeans clustering algorithm, and the relationship between these clusters and FDI inflows was examined using a fixed effects panel regression model. The results show that ESG cluster membership does not have a statistically significant effect on FDI inflows, suggesting that aggregated ESG profiles alone may not directly drive foreign investment decisions. Further analysis highlights governance as the most influential ESG dimension, while environmental and social components display weaker and inconsistent associations with FDI. These findings are supported by a Latent Dirichlet Allocation (LDA) topic modeling analysis of academic literature, which shows that governance themes dominate the ESG discourse, with environmental and social topics being less prominent. Overall, while ESG practices are increasingly integrated into policy and investment frameworks, their measurable effect on FDI remains limited. These findings suggest that policymakers seeking to attract FDI should not only pursue broad ESG improvements but also focus on strengthening governance institutions and regulatory frameworks. For investors, the results highlight the importance of looking beyond aggregate ESG scores to assess the underlying drivers of institutional quality and regulatory stability that more directly shape investment opportunities and risks at the country level. |
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